Would you rather have a larger paycheck or a larger tax refund?

[MonkeyMama]

Re: Would you rather have a larger paycheck or a larger tax refund?

I've had people at work tell me that although they'd like to get the money throughout the year instead of one big check, they know that they'd just end up blowing it instead of investing it. Here's what I suggest to them...

I tell them to change their W-4 so that instead of claiming no one, they claim one or whatever is relevant to the situation (where I work we can change this online practically every week). Then see how much difference there is in their take-home pay. Whatever percentage that is of their salary, add that much to their 401k plan while continuing to claim one exemption or whatever it is they bumped it up to. That way there's no difference in their take-home pay and the "extra" is automatically invested for them. Granted you have to do the math to make sure you're not going to end up paying Uncle Sam at the end of the year and it won't work for everyone's situation (ie. 401k maxed already out, etc.) but that's a simple solution I've found for many.

Now that is GOOD advice. I'll have to remember it. Though still no one I know wants to give up their refund - LOL.

[sparkysgirl]

Re: Would you rather have a larger paycheck or a larger tax refund?

It wasn't until I started to educate myself about money that I learned a bug chunk at the end of the year was less than what I could of gotten by putting it away every week/month and letting it sit there. Before I educated myself the bigger the refund the happier we were..This was the first year we got more money back during the year. We threw it towards our home equity line and watched it drop quick! It really brought to light how much we were paying in interest the last 2 years on the equity loan!

[disneysteve]

Re: Would you rather have a larger paycheck or a larger tax refund?

Unfortunately we're stuck with a big tax refund. DH works 2 weeks on 2 weeks off, but he is taxed as if he were making the same amount all four weeks in the cycle and there is absolutely nothing we can do about it.

All you need to do is adjust the number of exemptions he claims on his W-4. The more exemptions you claim, the less tax they withold. There is a witholding calculator at the irs website if you want to run the numbers or just have him increase by 1 and see where that puts you. If still too much taken out, increase by 1 more. HR should not have any problem with that. If they do, you need to go higher up in the company and complain. This should be very simple to fix.

[kv968]

Re: Would you rather have a larger paycheck or a larger tax refund?

Now that is GOOD advice. I'll have to remember it. Though still no one I know wants to give up their refund - LOL.

Thanks MonkeyMama. I will admit though some the people that have taken that advice do tend to look at me with slight hatred in their eyes around this time of year. Especially when they hear everyone else talking about their HUGE "refund" checks. I just try to remind them that that's what they wanted and to go look at their 401k statement instead

[tabbycat31]

Re: Would you rather have a larger paycheck or a larger tax refund?

I work as a tax preparer.

My clients ask me that all the time, and I have a book that has charts of how much is taken out of a paycheck by exemptions.

Most of my clients I am honest wtih them. I say "if you are disciplined to save the extra $20/paycheck by all means go for it". That being said, most Americans will fritter away that $20.

Many people use a tax refund as a method of forced savings. Personally I'm claiming 0 on my w-4, but I've also changed jobs often (in 2006) and I'm expecting self employment income in 2007 so I want to keep it at 0 to avoid making payments.

[creditcardfree]

Re: Would you rather have a larger paycheck or a larger tax refund?

For all of you who feel you don't have the discipline to save the extra money from a larger paycheck, make it automatic. Set it up ONCE to have the extra automatically go to your savings account or your roth ira. Many employers have the option for direct deposit and can split your check to two different accounts.

[tabbycat31]

Re: Would you rather have a larger paycheck or a larger tax refund?

creditcardfree, I do have an automatic savings plan for MYSELF. I transfer $50/paycheck into ING. I claim 0 for other reasons, mainly job uncertianty and likely self employment income so I don't have to make quarterly payments.

However for my clients, it's easier said than done. Most of my clients are on the lower income scale, and many don't even have checking accounts. I'd say 75% of my clients do not have a savings acct.