In tight economic times, people will look for any source than can to find extra money to cover emergency expenses like medical bills or car repairs. Before taking out an expensive short-term loan, see if you can change your tax withholdings for a short period. This allows you to borrow money against your tax return and can help you pay off emergency expenses as they arise.
How Does it Work?
Most employees have taxes taken out of their paychecks by their employers. When you first fill out your tax information, you will note whether you are single or married and how many dependents you have. Based on this information, the appropriate amount of money will be taken from your check and paid toward taxes. At the end of the year, if you have overpaid, the IRS will reimburse you the difference.
You can change the amount of your withholdings in order to retain more money from a paycheck. Prior to the check, change the withholdings on your tax information to reflect “married” with “nine” dependents. This will ensure that no federal income tax is deducted from your check. Many companies will allow you to view and change tax documents online, although some will require you to fill out a paper copy instead.
Once the updated information has been received, the withholding will be applied to your paycheck, and your next check will be substantially higher than you’re accustomed to. This will allow you to pay any emergency bills without owing anyone.
Is it Legal?
Borrowing money from your future tax return is absolutely legal. The money you pay from your paycheck is a projected tax. The actual amount you owe to the government will deviate. When you file your taxes at the end of the year, you will either receive a refund or owe more money to the IRS to cover your tax requirements. As long as you pay the taxes as necessary after filing, you can underpay throughout the year.
There are some concerns to be aware of when changing your withholdings. First, be sure to remember to change it back after your expense has been dealt with. Second, don’t borrow more than once or twice a year as you could end up owing otherwise. Understand that any money you receive through changing your withholding is money that you will not receive in your tax return, and budget accordingly.
Changing the amount of your tax withholding is not something you should do every payday, but it is much safer and more financially responsible than taking out a payday loan or other high-interest loan. By borrowing against your own taxes, you can be assured that you are owed the money you receive and you can borrow guilt-free.1