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Whenever you get a new job, or if you are in a job and always end up with a large tax refund check, you may want to consider re calculating withholding allowances for your w-9 again. But Jeffry, why would I want to lower my tax refund check? I like getting that big check back in April. My question to you is, do you like giving the government an interest free loan? Because that is exactly what you are doing by not increasing your allowances during the year to compensate for your overpayment to the government in income taxes. I understand that you don’t want to end up owing the government anything at the end of the year, and on that point, I agree with you. So what I wanted to do today was give you a quick formula to even out those withholding payments to the government, thereby increasing your take home pay and minimizing your tax refund check. Don’t worry, it isn’t going to be complicated, these are just some brush strokes.

Gross pay - charitable deductions - exemptions - mortgage interest expense = taxable income (for our purposes)

There are many more deductions out there, but I wanted to take the basics here just so you can quickly make a better decision when setting your number of allowances. Before I run an example, you need to know a basic calculation for each part of the above equation.

Charitable Deductions

Donations to your Church or other charitable organization is currently 100% tax deductible. So whatever you anticipate giving to these organizations this year, just fill that into the blank.


On a family tax return for 2008, you can take $3,500 per exemption, so a husband, wife, and 3 children could take 5 exemptions, or $17,500.

Mortgage Interest Expense

Although this will vary from year to year, just simply use your last statement of interest expense as a quick number to use for the purposes of calculating withholding allowances.

A Quick Withholding Allowance Example

Ok, now that we know the parts of the equation, let’s run a quick example. Let’s say that you are married and have 3 kids, like above, you make $50,000 per year, you gave 10% of your income to your Church, and paid $2000 in interest to your mortgage company last year. So then the quick equation is:

$50,000 - $5,000 (charity) - $17,500 (exemptions) - $2,000 (mortgage interest)  =  $25,500

Ok, so now that you have a yearly approximation, then divide that by 12 (for monthly payments), or 26 for biweekly payments, then look at this tax table (for 2008) to figure out about how much you owe in taxes on every paycheck. In our example, we would be liable for $980.77 every biweek, which means our equivalent tax would be $76.10 per paycheck. Now that you have that, just check with your payroll department to see how many allowances would be about right for $76.10 tax liability per paycheck. Also, just check with them to make sure you are about right in your calculations, just to be sure you don’t undershoot or overshoot too much, then have them make the change.

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