Let’s face it, we can all use more in our

weekly/bi-weekly/semi-monthly paychecks.

Yes, it would be difficult to walk into the

boss’ office today and judiciously argue your

merits for a raise with the economy in the

state of disarray it is (regardless of short-

term optimism). There are, however, ways in

which you can increase your net

income today–or just as soon as your HR

Department can process the changes. They

are quite easy, but do require that you give

up your large tax refund which may turn

some people off. What’s more, is that by

getting more of your income in your

paychecks, you can accomplish your

financial goals faster. That last line may be

just the motivation some people need to

adjust the way they view their big tax refund

preference

You know that little piece of paper that you filled out when you

first started your job? The worksheet that you probably had no

idea what to do with but knew that it had to be filled out? It’s

called a W-4 and its purpose is to tell the employer’s HR

Department just how much money in Federal withholding they

should take from your gross salary each payday. Most people

choose 0 allowances so that they can receive a hefty refund when

they file their annual 1040 individual tax return, which is a huge

mistake. Some see it as “forced savings”, which to a degree is

understandable if you have no self control with regard to

spending, except for one small fact: THERE IS NO INTEREST

EARNED ON THOSE “SAVINGS”. It may be nice to see a big direct

deposit in your bank account after filing your 1040 to pay off

holiday spending, or fund your IRA, or even fund your summer

vacation but with more and more people struggling to live on

current salaries, fund retirement accounts, pay down debt, etc.

why would you want to forfeit the ability to have that extra money

in a savings account since anything is better than earning 0%

interest? Even if you aren’t struggling, it still makes more sense to

get your money sooner rather than later.

Another often overlooked method of reducing tax withholding is

your employer’s Sec-125 Cafeteria Plan or Flexible Spending

Account (FSA). These vehicles are ways to pay for general health-

and child-care expenses such as daycare, medical insurance

premiums, and most out-of-pocket medical expenses. Under such

plans, contributions are exempt from Federal, Social Security, and

Medicare taxes (essentially excluded from wages in the

calculation of taxes). This way, you are still paying the same

amount of money for medical and child-care expenses, however

the earnings are not being taxed, thereby leaving more money in

your net pay each period. Not all employers have established

plans, so you will probably need to ask your HR Department about

it or request that the issue be researched.

By taking advantage of such not-so-secret methods of reducing

your tax withholding and planning for expenses, you effectively

increase your net pay, and give yourself a little extra income to

hopefully get your goals accomplished in a shorter amount of time.

The thing that I can’t understand is that so many

people claim to be frugal, or so money-wise that

they have adjusted their habits to take

advantage of every dime they have, yet some of

these same people give up the use of this money

simply because they want that larger inflow at

tax time. And, if someone claims to be good with

managing their money, isn’t it a little

nonsensical to use the excuse of “forced

savings”? Maybe someone can explain this to

me….