The W-4 is the form you fill out when starting a new job to determine how much federal income tax is withheld from your paycheck. While the default W-4 settings will work for many people, you may be able to adjust your W-4 to get more money in each paycheck, but you should take care when doing so.
Filling out your W-4: The basics
Table of Contents
Determine your tax situation
Think about your expected income, tax credits, deductions, and personal exemptions for the year. Are there any major changes from last year? Gather any related tax documents as well to help inform your W-4 changes.
Use the IRS withholding calculator
The IRS provides an online calculator you can use to estimate the right tax withholding for your situation. Plug in the relevant details and it will suggest the number of allowances to claim.
Claim allowances for dependents
If you have qualifying dependents, be sure to claim allowances for them on your W-4. Each allowance will reduce your taxable income amount.
Consider additional income
If you have additional income like interest, dividends, or freelance work, you may need to account for estimated taxes on that income separately. Claiming fewer allowances can help cover the tax due.
Request additional withholding
If you are significantly underwithheld, you can request an additional flat dollar amount be withheld from each paycheck in Step 4(c) of the W-4. This increases the tax taken out upfront.
Update as needed
Major life changes like marriage, childbirth, or new deductions may require submitting an updated W-4 to your employer. Recheck your withholding any time your situation changes. For more, here’s our detailed guide to filling out your W-4.
A larger refund means more withheld throughout the year
Rather than getting a lump sum refund at tax time, it’s better to properly withhold and receive more in each paycheck throughout the year. That big refund means you’ve overpaid your taxes all year, and the government has been holding on to your money; all the while, you could have invested or earned interest on that money yourself. And ultimately, getting a huge refund signals that your tax withholding was too high and more was taken out of each paycheck than necessary. It’s better to adjust your withholding to match your tax liability.
For obvious reasons, I won’t list all the illegal ways people try to improperly maximize tax refunds—but there are perfectly legitimate ways to adjust your W-4 to optimize tax withholding. The key is to try to optimize your withholding to match your expected tax liability:
-
Review your tax situation from last year. Did you get a large refund or owe a lot at tax time? Use this info to determine if you need to adjust your withholding.
-
Make sure your number of allowances claimed on your W4 is accurate based on your tax situation. The higher the number, the less tax withheld.
-
If you had major life changes like getting married or having a child, update your W4 to reflect that. Getting married allows you to claim additional allowances.
-
Use the IRS withholding calculator to estimate the right allowances to claim if your tax situation is complex. It helps optimize your withholding.
-
If you have multiple jobs or your spouse works, adjust your W4 allowances accordingly on the W-4s to prevent underwithholding.
-
Adjust your additional withholding amount if needed. You can have extra tax taken out per pay period on the W-4.
-
Submit a new W-4 to your employer if needed to update your withholding.
The bottom line: Getting a large refund means you had too much tax withheld throughout the year. Adjusting your W-4 is one way to potentially get more money in your regular paychecks throughout the year, versus one big refund after taxes. Just be careful not to have too little withheld, or you may owe a penalty when you file your tax return. As always, consult a tax professional for advice on your specific situation.