change tax withholding to increase 401k contribution?

Question

Hello,
I'd like to learn how to change my tax withholding so that I can increase my 401k contribution without seeing a change in my net income.

Thanks, in advance, for your help.

Answer 1

Your net income is the amount of $ you make minus 401k minus taxes owed.

If you change your withholding, your tax owed doesn't change. It just may not get withheld from your check. You will either cut into your tax return, or end up owing tax at the end of the year.

If you want to increase your net income by reducing your tax lability, the only way to do this is to write your senators and congresspeople and tell them to cut your taxes!

Answer 2

First off, congratulations for doing some smart tax planning.

It will take some work, but it CAN be done. Using a spreadsheet will help tremendously because you will need to deconstruct your paycheck.

First, you will need to review your paystub because you will need this information.

Second, you need to know how often you get paid whether its weekly, every 2 weeks, twice a month, etc. It makes a difference in how the federal tax is withheld from your paycheck.

Third, review IRS publication 15, beginning on page 34, table 5. This table shows you how much each exemption from your W-4 is worth depending on how you get paid. For example, if you claim 5 exemptions and you get paid every week, 317.30 of your wages will not be taxed on your pay check.

Fourth, determine what deductions, other than your 401(k) are being taken out pre-tax. If you don't know, find out from someone in your companies payroll department. Some of these deductions include health insurance and flexible spending accounts.

Fifth, take your gross pay and subtract any pre-tax deductions from it, including your current 401(k) deduction to come up with your current taxable wages.

Sixth, go to page 36 of Publication 15 to determine your Federal Tax Withholding. It should be within a few pennies of your current Federal Withholding (based on your current W-4). This is a test to make sure that you are doing the calculations correctly.

Seventh, determine what your new percentage of your 401(k) that you would like.

Eigtht, repeat step 6 using your new 401(k) deduction.

Ninth, adjust your W-4 to determine a figure that is close to what you are brining home now.

Caution: Once you figure this out, be sure to do a mock tax return so you don't have too little Federal taxes taken out of your paycheck.

Answer 3

The only thing you have to do is change the percentage or the actual dollar contribution from the current amount to the new amount. You can get this form from your Human Resources Department.

You are not changing your income tax withholding. By increasing the contribution to your 401K (which takes the amount from your gross income, prior to tax and other charges), your taxable income goes down.

For example, if you make $5000 per month and had 0% contribution to 401K, then you get taxed on that $5000. However, if you contribute 10% of your $5000, which is $500, then you get taxed on $5000-$500=$4500.

Answer 4

Use the IRS withholding calculator

Answer 5

Ask your employer for the form to change your W-4, or find it at http://www.irs.gov.

Answer 6

impossible it goes against the gvt incentive to invest for your future