Want a Raise in 2021? You May Not Even Need to Ask for It

If you got a big tax refund last year, changing your W-4 form at work could put more money in your pocket now.
Tina Orem
By Tina Orem 
Edited by Arielle O'Shea

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Pay raises can be hard to come by, especially now. But if you received a big tax refund this year, getting more take-home pay next year could be a matter of filling out a form.

That form is the W-4, and it has a big influence on how much tax comes out of your paycheck. Routinely having too much tax withheld — that is, overpaying your income taxes throughout the year — is often the cause of big tax refunds, according to the IRS. Changing what’s on your W-4 form can make it possible to skip the monthslong wait for a tax refund and boost your monthly take-home pay instead.

Money now versus later

For families struggling to pay bills, having more cash now rather than later can be a game-changer. “If you have someone that had a huge refund last year, but maybe day-to-day expenses, groceries and stuff like that were a little bit tight, then [they] could adjust the W-4 to have less withheld so they would have more in their check every two weeks,” says Adam Traywick, a certified public accountant in Fort Worth, Texas. “The regular expenses would be a little bit more manageable.”

Seeing the connection between day-to-day financial life and what’s on a W-4 can be hard. Linda Rogers, a certified financial planner at San Diego-based Planning Within Reach, recalls a client who was racking up credit card debt little by little every month because of trouble making ends meet.

“It's very obvious that it was the withholding, but to them it was not obvious. When you're in the thick of it — they're thinking, ‘I'm overspending again,’” she says. “It was costing them money, and they were feeling bad about themselves for not being able to live within their means. It was just this situation where even though it feels good to get a refund, it's not what you should be doing.”

Taking control of your paycheck

To home in on how much to withhold, Rogers suggests first estimating how much income tax you’ll owe for the year. An online tax estimator or a tax pro can help you. If your financial situation hasn’t changed much in the last year, you could also look at your previous year’s tax return, Traywick says. That can help you get an idea of whether you’re withholding too much.

“There haven't been a tremendous amount of personal tax rule changes in the last year, so I would take the income from last year's tax return and compare it to my pay stub,” he says. The IRS website has a withholding estimator that can also help do the math.

If it looks like what’s coming out of your paychecks will be more than your estimated tax liability for the year, you can fill out a new W-4 and reduce your withholdings to cover just what you expect to owe, Rogers suggests. You can change your W-4 at any time: Just complete the form (available on the IRS website) and give it to your employer.

“It's surprisingly easy to get control of it and get pretty darn close to what you would owe just by adjusting that W-4,” Rogers says.

You can review your paycheck after you’ve changed your withholdings to make sure your take-home pay is in line with what you were expecting, and if it isn’t, you can fill out another W-4 and adjust things again, Traywick says.

But tread with caution. “You don't want to lower your withholding so you get a bigger check but then have to wind up owing the government money that you don't have,” he says.

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