Content Overview 
- Summary
- Step 1. Calculate Your Real Earnings
- Step 2. Look At Increasing Your Paycheck Increasing Your Income Or Decreasing Your Expenses
- Step 3: If You Have A Cafeteria Plan, Consider Changing Your Elections
- Step 4. If You Have Retirement Savings, Consider Reducing The Amount You Put Into The Plan
- Step 5. Think About Changing Your Tax Withholding
- Step 6. Ask For A Raise
- Step 7. If You're Up To It, Consider Obtaining A Second Job
- Step 8. Consider Changing Jobs, Self-Employment Or Freelancing
How To Increase Your Income If You Are Working
Step 5. Think About Changing Your Tax Withholding
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Your employer is required to withhold income taxes from your salary based on the number of personal allowances you claim on your W-4 form. The more personal allowances you claim, the less your employer will withhold and the higher your take-home pay will be. Keep in mind that the number of dependents you claim is only one factor that affects the number of personal allowances you can legitimately claim.
You can legitimately increase your withholding (thereby avoiding a potential $500 fee for filing a false W-4) if you:
- Received a large tax refund last year, and your income, deductions and credits are about the same this year.
- Expect your income to decrease, or expect to go on disability later in the year, and receive a much lower income when you do now, thus lowering your tax bracket.
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Expect to receive the same amount of income as last year, but your adjustments, deductions (such as estimated medical expenses), or credits are anticipated to increase.
To help calculate the minimum amount that can legally be withheld:
- Estimate the increases in your adjustments, particularly medical expenses.
- Estimate the potential decreases in your income, such as if you anticipate going on disability during the year.
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If your estimates are off, you can revise the W-4 form at any time during the year as often as needed. To see the effect of a change, see the Deductions and Adjustments Worksheet on page 2 of the W-4. You can obtain a copy of a W-4 at: http://www.irs.gov/pub/irs-pdf/fw4.pdf
To change your withholding, complete a new Form W-4. After making a copy for your records, give the W-4 to whoever handles payroll at your job. If you have an accountant or tax preparer, ask for advice first. It may also be helpful to read IRS Publication No. 919: "How Do I Adjust My Tax Withholding," available at www.irs.gov/publications/p919/index.html
Keep in mind that while decreasing the amount you have withheld from your paycheck will increase your take-home pay, if enough money is not withheld during the year you could owe taxes and, perhaps, an underpayment penalty, next year.
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