I’m sure most people have heard the terms Tax Withholdings and W-4s. After receiving my tax refund I decided to see how I could adjust my taxes in order to not receive a refund next year. First we need to get everyone on the same page and understand the differences between the terms listed above.

Tax Withholdings:

The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year.
As a wage earner, you pay federal income tax by having it withheld from your pay during the year. This is your “withholding.” Your withholding is based on the number of allowances you claim when you file Form W-4, Employee’s Withholding Allowance Certificate, with your employer. (IRS Publication 919)


W-4 is a tax form used by the United States Internal Revenue Service. The form is used by employers to determine the correct amount of tax withholding to deduct from employees’ wages. Ideally, this amount will exactly equal the annual tax due on the 1040 series related to employment compensation, though in reality, many times it is off by a substantial amount. (Wikipedia)

In order to figure out the correct withholdings you will need to gather some information.

  • Print this form out from the IRS, How do I adjust my tax withholding
  • Have a copy of your tax return handy for reference
  • Have a copy of your Schedule-A Itemized Deductions sheet if you plan to itemize

Withholdings using the Standard Deduction
If you use the standard deduction, adjusting the withholdings may not help much. If you are having a child or are caring for a relative, then you can adjust the withholding by 1 for each case. Adjusting more will leave you open to the possiblity of having to pay next April. Use the IRS Withholding Calculator to enter your information to see how it can benefit you.

Withholdings using Itemized Deductions
If you pay mortgage interest, state taxes, property taxes, medical expenses in excess of 7.5% of your income, or have charitable contributions then you probably receive a much larger tax refund. These are all deductions that reduce the amount of taxes you pay resulting in overpaying the govenment throughout the year. In an ideal world the government would take out the correct amount of taxes, leaving you with only a small amount pay back or receive. Having a small amount at the end of the year means you can have extra money each paycheck to help with debt reduction, bills, and even investing. Having the government hold onto money I can use to get out of debt doesn’t sit well with me.

There are a few tools to use to help you understand the correct amount of withholding to claim on your W-4 forms. The first is the IRS Withholding Calculator. The tool requires you to enter a bunch of information. Below is a snapshot of one of the screens.

You will also need some information about itemized deductions. If your pay will remain about the same, use your Schedule-A form from your tax return to enter these values. Example, if you pay state taxes and property taxes add these up and enter the value. Enter the mortgage interest from last year since it will likely be very close to this year. After all the information is entered. The IRS calculator will tell you how many withholdings you should claim.

I was very surprised by the amount of withholdings I should claim for 2010. I have been claiming 4 which has resulted in a large tax refund. After using the calculator, I’m now changing my withholdings to 8. Now that you know how many withholdings to claim how do you figure how much extra money you’ll be getting in each paycheck. Use this calculator provided by Yahoo – How Will Payroll Adjustments Affect My Take-Home Pay? The calculator is very simple to use. Plug in the required values and it will show you the amount of extra money you’ll be getting in your paycheck. It works great and I will be getting almost $300 extra per month. That money will be applied to my debt and help to really make that snowball roll faster down the hill.

The Back Check
I love the ablity to use online calculators and such to make life easier, but whenever taxes are involve I get a little worried. To back check the calculator the IRS has a worksheet that you can manually use to figure out the correct withholdings Worksheet. I used the form and was able to reach the same results. Now that I’ve performed the actions required for me to sleep well at night, it’s time to adjust the withholdings.

The W-4
The IRS has a W-4 form avaliable online for download: Form W-4 (2010). Most employers use their own form so you need to contact your HR person to locate the correct form to use. Once you have the correct form, just fill it out and send it in. Your employer will make the changes and you’ll see some extra money in 1 to 2 pay cycles.

In the past I’ve read many different articles about adjusting tax withholdings. I followed one of them two years ago. The advice was to add an exemption for yourself, my spouse, my children, and my mortgage. That was 4 at the time. I was still getting a large tax return, so that’s why I dug into the issue. Personal finance and taxes are completely dependant on YOUR situation. Rules of thumb are great, but rarely apply to each person. I hope that you’ll use this information to figure out how to adjust your withholdings. Please seek the advice of a professional if you have questions. Remember that I’m just a pizza delivery guy working his but off to get out of debt. This is just another way to increase the traction required to get out of debt. If you love getting a huge tax return, don’t change a thing. Good luck everyone.

Here are a couple more tax related links to check out – 2010 Tax Brackets and Marginal Tax Rate
and what you should know about the 2010 Estate Tax


Today, just about every type of financial institution offers online banking, automatic bill pay, automatic transfers, an easy-to-use website interface, and minimal-to-zero account fees.

Not only that, but almost every savings account, retirement plan, payment account, and bill that you receive has an option for automatic payment.

Even our church has begun to accept online automated giving.

No matter how many automated options are out there, the question still lies with you; are you ready to automate your personal finances?

Putting Your Personal Finances on Cruise Control

Automating your finances saves time. Whether it’s the routine daily transactions or the monthly savings contributions, automating these will put more time in your wallet.

When you create a sound financial automation strategy, you’ll begin to see improvement in many areas of your finances because your system will be making the right decisions for you.

Improving Your Savings – Do you want to save money, but you’re left with next to nothing at the end of every month? Instead of trying to save the leftovers of your budget at the end of the month, set up an automatic transfer at the beginning of your budget cycle when there’s more money to move around.

Go beyond a simple savings account. You can set up automatic transfers into your IRA, your 529 College Savings Plan, your vacation fund, your emergency fund, your house down payment, your car maintenance fund, and a host of other accounts that you might have.

Automating transfers takes the decision out of your hands every month. It helps to strengthen your financial self control by allowing you to make savings decisions when you’re of sound financial mind, and it continues to make the right decisions for you every 30 days.

An automatic money transfer doesn’t have to decide whether or not to save this month or blow your cash on stuff you might not even use.

Paying Bills On Time . . . Forever – If you’ve ever missed a due date, automating online bill payments just might be your saving grace. Automating your bill payments will ensure that you never miss another due date, never incur another late fee, and never lose a low interest rate because you forgot to pay on time.

For me, it was hard to want to automate bill payments at first. My conspiracy-driven mind assumed that mistakes could run rampant. I worried that I would get over charged or that automatic payments would be impossible to keep up with.

After more than 7 years being fully automated, I can tell you that it’s truly more difficult to ignore your payment information than it is to miss something pertaining to your payments.

Emails, text alerts, phone calls, and snail mail keep me updated and informed on anything and everything to do with my automatic payments.

Automating Opposition

No matter what sort of strategy you use, can we all agree that it takes a certain amount of self control to steer your personal finances toward success?

Sure, if you nitpick enough you can find flaws in any system for any topic anywhere in the world. And with a quick internet search of ‘automating your finances‘, you’ll quickly find that there’s plenty of people for and against this seemingly practical system of personal finance.

The reason nothing is foolproof is because every financial plan is dependant on its user, and we all make mistakes from time to time.

The opposition to automating your personal finances says that taking away your attention from your monthly budget can lead to distractions, disconnections from your financial situation, and overspending due to these factors.

This might be a possible outcome, but the likelihood of overspending due to automation still depends on your self control as an individual.

I look at it like this; for me, automating my necessary monthly transfers and payments gives me an extra financial safety net. And each month I find ways to encourage myself and increase my self control and dedication to a positive financial future.

So what’s your story? Which side of the Automation Fence are you living on?

Photo By i_yudai


Apps to Help Improve Credit Scores

March 20, 2015

Many believe that improving their credit score takes years of work and lots of money. But, the truth is, it is a balance of not overspending and managing your finances wisely. The following four apps can help you improve your credit score by monitoring it or monitoring your finances. Credit Karma Credit Karma is a […]

Read the full article →

How Many Installment Loans are Too Many?

December 29, 2014

Are you worried about having too many installment loans? Well, you shouldn’t. The number of loans isn’t the problem: it’s the fixed monthly payments that can become the issue. If your debt to income ratio is too high, it doesn’t matter if it’s an installment or revolving account. What is the Appropriate Number of Installment […]

Read the full article →

Aereo Micro Antenna and the Big Bad Broadcasters

April 17, 2014

As a person who loves finding ways to save money and get stuff for free (legally of course), I am positively intrigued about an upcoming Supreme Court case which may actually decide the fate of how we consume media. The Backstory Aereo is a start-up tech company that has developed a micro antenna for catching […]

Read the full article →

Is Social Media Keeping You in Debt?

June 20, 2013

In a simpler time, folks were only envious of what their neighbors had – a bigger house, a newer car, or even a better lawn. Things have definitely changed. Personally, I go back and forth on social media. One day I’ll appreciate the ease of communication and the ability to keep in touch . . […]

Read the full article →

How to Spot Bad Financial Advice

June 5, 2013

Ok, so this post will probably sound like a gripe session here and there.  But I’m okay with that. I was reading an article online earlier this week (from a reliable source) about used cars and saving money.  But the writer took a u-turn and basically instructed the reader to buy a new car if […]

Read the full article →