Is it better to have more taken out of
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Is it better to have more taken out of
| Fri, 03-11-2005 - 10:12am |
your paycheck for taxes or less?
DH has claimed single, and all 0s since we met. He has ALOT taken from his check. THe last two years at tax time, we've recieved over 12K in refunds. Last year it was 12K federal, this year 13K.
When we recieve these refunds, we pay off a car or put it on debt. We are still in alot of debt.
Should I have him bring more money HOME and get a smaller refund at tax time? I have to admit, getting that much in one lump is cool, but as I posted to someone elses posts, Ive sometimes taken cash advances to get through the month.
Im thinking I should have him change his w2.
What do you think? Is there an online calculator that will let me see what we would bring home if he changes his elections?
Nat

What you are doing is giving the government an interest free loan for a year. I would have fewer taxes taken out. My DH and I change his taxes everytime we add a dependent and still leave one greater withholding. For example right now he could claim 5 exemptions, but we only claim 4.
Go to IRS.gov and there is an online calculator that will tell you how many exemptions you can take and what it will do to your paycheck.
HTH,
Kellie
Think of it this way, you are carrying credit card debt all year long and paying it down once per year. If you have $12,000 in credit card debt at 14% interest that is $1,680 in interest you pay over 12 months. The government is holding your cash for you, while you pay $1,680 for the privelage of waiting all year for the refund.
What I would do is reduce his withholdings some. It's nice not to have to *pay* taxes at tax time, and the best way to ensure you won't have to pay is have enough withheld that you get some kind of refund. Try to set it so that you get $2,000 back at tax time instead of $12,000.
Then what you should do is each paycheck take anything over the previous paycheck amount and always always always send that amount toward debt repayment. So if his check is $1,500 each time now, and when he chances the withholding his check jumps to $1,900, you automatically (the day the check posts) send $400 to your credit card or car loan.
You also need to set a realistic budget for yourself so that you don't need to take cash advances during the month ever. Take a hard look at your spending, your bills and your income. You either need income to go up or spending to go down, and you need to save something (even if it's $25 per paycheck) so that you can use savings when you have a shortfall, not credit cards.
I guess the question you need to ask yourself is are you disaplined and organized enough to use the extra money each month toward bills. If you are great, have your DH change his withholdings, like all of the PP's said better you saving money on interest fee's etc. But if you are not dedicated to taking that money each payday and paying it toward debt then you are probably better off getting the large tax return. I know this is not the popular response but you don't need to be spending more mney just because you have it!
Nicola