Are you at the tipping point of financial distress? Will one more month or year possibly break you financially? Will your financial troubles negatively impact your higher-level security clearance or special access program? If you need extra money quick and don’t have time for most long-term strategies, then the quickest way you can possibly generate extra cash is to adjust your tax withholdings.
People should take care before making this move; however, it is a move that everyone should consider regardless of their financial status. It doesn’t make any financial or economical sense to suffer all year long, paying interest on debt and then receive a large income tax refund at the end of the year. If you typically get more than $2,000 a year or more back in your income tax refund, then consider taking the following steps to get more money back monthly.
- State Taxes – Search on the internet or contact your local military finance office to see if your state requires you to pay state taxes where you are currently stationed. I’m a California resident and anytime I’m stationed outside California I’m allowed to not pay State taxes. Of course this means that I won’t get any refund back either. If this applies to you then you can go to your local military finance office and ask for a DD Form 2058-1, State Income Tax Exemption Test Certificate. Depending on what day you go in during the month will determine when it will apply to your next paycheck (known as a “cutoff” date), but should take less than a month. I’ve seen people get as much as $20-$50 a paycheck extra by exempting themselves from State taxes.
- Military Pay Exemptions – Anyone can change their W-4 exemptions on Mypay (https://mypay.dfas.mil/mypay.aspx) anytime they want. But before doing that, you should login to MyPay and do the IRS Withholding Calculator that is located in the Federal Withholding section on the Main page. Once you’ve done the calculator you can reasonably determine what your exemptions should be. Once a year you should redo the calculator to ensure that annual raises and promotions haven’t changed your status. When adjusting your W-4, you can put as many exemptions as you want to adjust your tax withholdings each month, but just keep in mind that this will be the main vehicle that reduces your income tax refund check. If you don’t pay enough during the year, you may owe the IRS money. I’ve seen people get as much as $50-$200 a paycheck extra by CORRECTLY adjusting their withholdings.
Again, take great care when using these techniques. This tip is not just for those struggling with their finances either. Some of our junior enlisted families receive large amounts of Earned Income Credit and receive $5,000 or more tax refunds. These tax refunds are nice at the end of the year, but if you are struggling the whole year and your career or security clearance in jeopardy, then it makes sense to get more of that money in your paycheck every month. If you’re doing well with your finances and you want to maximize your savings, then this is a good way to do it also. Over time, putting your own money to working during the year, instead of at the end, will pay off big time. Leave a comment and tell me if you've had success with this before.
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