4

This question already has an answer here:

When filling out a standard W4 form, there is always the ability to withhold an extra amount of cash from each of your paychecks. Until now, working at part time jobs, I needed as much of my money as fast as I could get it, and I simply ignored the field.

Now, however, I'm at a point where I could spare a few dollars each check and I'm wondering if there is any value in doing this.

Does this amount help with anything in particular? If I choose to do this, can I at some point in the future stop having this extra amount withheld?

All answers are greatly appreciated.

marked as duplicate by JoeTaxpayer united-states Aug 23 '16 at 16:47

This question has been asked before and already has an answer. If those answers do not fully address your question, please ask a new question.

  • 2
    Short version of that duplicate - you can get more tax withheld during the year, but don't lend your money to the government for free, unless you need to, to avoid underpayment penalties. – Grade 'Eh' Bacon Aug 23 '16 at 13:06
6

I'm "over-withholding" because I have significant income from non-salary sources most years, and it's easier for me to simply have a bit more taken out of the paycheck than to file Estimated Taxes.

  • 3
    Your reason to withhold extra probably doesn't apply to most people, but for those that it does, this is a fantastic reason to do it. – TTT Aug 23 '16 at 15:07
5

Do you anticipate owing income tax this year? If so you may want to increase the amount withheld. You can do this with a combination of reducing deductions and using the additional withholding. Owing more then $1000 could induce some penalties.

Do you anticipate receiving a refund this year? If so you are far better saving the money then giving it to the government to hold. In fact you may want to increase your exemptions if your refund was large (over $1000)

Using a paycheck calculator and the anticipated tax forms from the IRS can help you figure the right mix of exemptions and additional withholding. I'd shoot for a zero refund as laws can change that can cause some fluctuations.

  • This year, due to starting this job mid year, and from a friend having a similar experience, I can at least assume I will be receiving a rather unusually large refund. In future years, however I'm unsure. Also, what do you mean by increase my dependents? – Ranma344 Aug 23 '16 at 13:15
  • My appologies, edited. I meant exemptions. – Pete B. Aug 23 '16 at 14:12
4

Some people withhold extra as a way of forcing savings -- they expect to get a big tax refund back in the spring of next year. Withholding more than the government is due is giving the government an interest-free loan. Remember that you get back exactly the amount over-withheld, and not a penny more.

  • 1
    I came here to post this. A good friend of mine does this, it makes absolutely no sense to me, but he likes getting the big refund. – quid Aug 23 '16 at 16:47

Not the answer you're looking for? Browse other questions tagged or ask your own question.