Today I Increased Jay’s Paycheck Amount

I actually did this earlier in the year and have been meaning to write a post about it. Is it about saving money? Not in the same sense as most of my posts. But it is about having more take home pay. And it’s about not lending our hard earned money to the government, interest free, until tax time rolls around.

Usually, we owe money at tax time. But, in ’11, we got a sizeable refund. A nice little windfall if you choose to look at it that way. (I, on the other hand, saw it as a reminder of what a lousy year we’d had flipping houses. On the bright side, the difficulty making money flipping foreclosures is a sign of how much better the housing market is in the Denver area and, since we own a house and a number of rentals, there IS an upside for us.)

Anyway, it was clear early in ’12 that it was going to be another rough year. Rather than wait until next April to get another chunk of money back from the IRS, I decided it would be preferable to manipulate Jay’s withholding allowances so that he paid not too much, not too little, but just the right amount of Federal taxes.

It’s not an exact science, especially if you have unexpected earnings from other sources, but you can tweak it along the way if necessary.

The first thing I did was to look at our ’11 tax return and see what the total taxes owed was. Then I divided that amount by 26, since Jay is paid biweekly, to figure out how much should have been taken out per paycheck.

The next step was to go online and find a withholdings calculator. I used the one at
It’s a simple matter of filling in the particulars and clicking the “calculate” button. I determined that we could go from 0 allowances to 9. Luckily, Jay could logon and make the change himself on his company’s HR website. The calculator results were remarkably accurate when compared to his actual paychecks.

The end result was to increase Jay’s take home pay by $177 per pay period. That’s $4,600 over the course of the year that we are in control of, not the government. And, since we only got the big refund once, it’s not like we had gotten used to getting a chunk every year at tax time. 

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