How to Improve Your Budget Without Earning More Money

Do you receive a substantial tax refund every year? Are you also constantly behind in your budget? If so, you may be able to reduce your income tax witholding with your employer in order to retain a greater portion of your earnings throughout the year. The following steps will show you how.

Things You'll Need

• A copy of your income tax return
• A copy of your year-end pay stub

Instructions

1. Many income tax filers do not realize how much their employers are withholding from their paychecks for income taxes. When they first began their jobs, they simply chose a "safe" number of allowances to claim, so that they would be sure to get a refund at the end of the year.

2. However, many of those who did this did not realize that they would still get refunds even if their withholding was much less, because of tax credits that they were entitled to such as the Earned Income Credit and the Child Tax Credit.

3. For example, a taxpayer with two dependents that makes $40,000 a year may not need to have much tax withheld, because of the tax credits and dependency exemptions that he or she will be entitled to. He or she could have no withholding and still get a refund from either the Earned Income Credit or the Additional Child Tax Credit.

4. The key is to look at your income tax return for the past year and see what credits and deductions you have received. If you received $1,500 of Earned Income Credit and $2,000 of Child Tax Credits, then you may have received most or all of your tax withholding back as a refund. You need to compare the amount of your refund with the total dollar amount that it shows that you had withheld on your year-end pay stub. If your refund is larger than the amount you had withheld, then you probably need to reduce your withholding.

5. Your supervisor or human resources manager will have the necessary paperwork to allow you to change your tax withholding. They will supply you with a W9 form to do this. You will need to increase the number of exemptions that you are claiming, such as from 0 to 1 or 2 or from 2 to 3 or 4.

6. If you received a tax refund last year of $3,500, and $2,000 of that was from income tax withheld, then that translates into an extra $167 per month of take-home pay. Enjoy!

Tips & Warnings

• Much of the relevance of this article depends upon just how wisely you spend your refund. If you immediately sock it away in savings or use it for a major puchase or debt reduction, then you may be better off leaving things as they are.

• This article is intended as a general guide and should not be construed as specific tax advice. If you have further questions on this subject, you should consult your tax advisor.