Taking out an extra $20 for your withholding tax every payday, Good or Bad idea?

Question

I'm asking because I'm thinking of changing my W4 Form to take an extra 20 out every payday so next year I won't owe anything and might even get a little back.

Answer 1

If you prefer the government to have your money and collect interest on it, rather than having it in your own bank account earning interest for you, then go ahead.

Answer 2

If you get paid weekly it is a good idea. It eliminates any chance of penalties if you only settle up once a year.

If you get paid less often, why not put the money in a savings account and forget about it until tax time?

In any case, if you have an extra $20 withheld and it gets you a refund of, say, $100 or less, then it is a reasonable thing to do. What you don't want to do is have an extra $20 per week withheld and then get a refund of $1,000 at the end of the year. As someone else said, that would be like giving Uncle Sam an interest-free loan. You might as well lend it to me. I need some spending money for my post tax-season holiday.

Answer 3

Bad idea. You would be giving the federal government an interest free loan. Take the $20 per paycheck, and put it in a savings account. Then YOU will have the benefit of YOUR money until April 15. (It will earn interest for you.) You can even have the $20 split off from your pay via direct deposit, or transfer it automatically using your bank's bill pay.

Use the money to pay your taxes on April 15, or if you don't owe, have a party.

Answer 4

Are you single or married? Dependents? The fact is that at 18% per payday you are paying in plenty to get a return. Why would you want to put extra money into something that you do not get paid interest on? Call a CPA they can give you a good idea on how to do W4 form so that you don't pay in and get a return.

Answer 5

As long as it is really necessary to match the shortfall in withholding, or to give yourself a little mad money, all right. But if it actually results in a lot of over-withholding, you'd be better offf either putting it into an IRA or buying U.S.Series I Savings Bonds. That way you, and not the government, would be making money on your money.

Answer 6

I agree, it is a bad idea. Just have it direct depoited to a money market or interest bearing savings account. That way you earn something for your savings. Then if you owe at the end of the year you pay your own taxes. If not keep saving it and maybe you can afford a dream car one day, or whatever you want!

Answer 7

I personally think it's a good idea,I had done somehing similar, but it's best you consult a tax preparer about it. If you put into a bank which pays little interest and then you have to pay taxes on that interest doesn't sound too good. Your way might mean you will not have to pay IRS at the end of the year or even get something back because you have already over paid. But as I say, check with some one with knowledge of tax breaks etc.

Answer 8

No, don't do it. Your best bet would be to take that $20 and put it into a savings plan. If your employer has 401K sign up for it. If not, bank the $20 in savings. Make your own interest....

Answer 9

If you owed this year, that is a good idea. You should divide the amount you had to pay by the number of pay periods remaining in the year and have that amount withheld from each paycheck.

Answer 10

Whether it's a good or bad idea depends on whether you'll owe otherwise. If you're just trying to even things up, it's a good idea. If you're already getting a refund and just trying to make it larger, it's a bad idea because you're lending your money interest-free to the government.

Answer 11

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