How to Use a W-4 to Boost Your Take-Home Pay
Life moves fast. In the blink of an eye, marriage, divorce, starting a family, pay raises and layoffs can change your financial landscape. Luckily, there’s a form—one you may have long forgotten—that could help boost your take-home pay when life’s twists and turns arrive.
When you start a job, you fill out a W-4 to determine how much of your salary should be withheld for income taxes. But over time changes to life circumstances—combined with changes to the U.S. tax code—lead many Americans to overpay.
The upshot: Your W-4 is a powerful tool that can give your monthly take-home pay a welcome lift—that is, after your HR department processes it through their payroll service (which could take a pay period or two). Just remember: Reducing your withholding will also reduce your tax refund come tax day. And be careful you don’t overdo it and end up owing the IRS money as about one in 13 Americans do each year.
‍
What is a W-4?
Internal Revenue Service Form W-4: Employee’s Withholding Certificate, tells your employer how much of your pay to withhold for income taxes. Your withholding amount reflects answers to a number of questions about your filing status: how many jobs you have, if your spouse works, if you have any dependents, whether you expect tax credits and additional withholdings or if there are deductions you anticipate taking on your current year’s tax return (which you’ll file the next year).Â
If the thought of revising your W-4 and re-answering all those questions gives you the shivers, it’s understandable, says Andrea Harrington, a certified public accountant with FML CPAs in Glastonbury, Conn.
“It’s a terrifying form—kind of a math puzzle,” says Harrington. To keep stress levels down and your withholdings dialed in, she suggests an annual approach to W-4 adjustments. “Just think about it once per year, as part of your broader financial checkup.”
Five reasons to adjust your W-4
While life events warrant W-4 updates, experts say there are also strategic reasons to revisit your form and tax withholdings. These five circumstances can tell you it may be time to give the IRS a bit less and your bank account a bit more.
1. You got a large tax refund
If your most recent tax refund was eye-poppingly large, it could be a sign that you need to adjust your W-4. After all, every penny of that refund is a 0% interest loan to the federal government—a pill that many clients find tough to swallow, says Corey Hulstein, a certified public accountant at Modern Wealth Management in Kansas City, Mo.
By adjusting your W-4 withholdings downward, you can score a near-instant pay raise. How much? If your last refund was $2,500, a W-4 adjustment could put just over $200 more in your pocket each month. Then, you can stash the cash in a high-yield savings account to earn even more.Â
To get the biggest income boost for the year, Hulstein recommends updating your W-4 as early in the year as possible.Â
2. You’re eligible for substantial tax credits
Certain federal and state-level tax credits such as those for energy-efficient home improvements or an electric vehicle purchase can significantly reduce your year-end tax bill. Adjusting your W-4 is probably wise if you’ve already made the investment or plan to in the coming year.
“I see a lot of clients putting in solar,” says Hulstein. “That’s a 30% tax credit, and those systems aren’t cheap.” There is no annual limit on the tax credit you can receive for installing a solar system. Meanwhile, purchasing the right electric vehicle could also score you a credit as high as $7,500. Since tax credits are dollar-for-dollar reductions to your tax bill, claiming one or both of these credits may mean that you can make a drastic reduction to your tax withholdings for the year.Â
Determining your eligibility for a particular credit can be tricky. If you choose to work with a tax professional to figure it all out, Hulstein suggests finding someone who specializes in tax planning and not just tax preparation. Tax planners are often more adept at reviewing your past, present and future tax liabilities to help you maximize credits and take-home pay.
3. You bought a home or took out a home-equity loan
During the first year of homeownership, you can rack-up serious deductions, including for closing costs and mortgage interest. And with home prices still at historic highs, buying one could make you eligible to itemize and reduce your tax burden for the year.
To tip you over from the standard deduction into itemizing territory on your 2024 taxes (filed in 2025), you’ll need deductions totaling at least $14,600 if you’re a single filer and $29,200 if you file jointly. With 30-year mortgage rates currently in 7% territory, a $750,000 mortgage would rack-up more than $50,000 in interest its first year; a $300,000 home could send a single filer to itemized deductions with first-year interest ringing in at $21,000. Interest paid on home-equity loans and home equity lines of credit, or Helocs, can sometimes qualify, too.
4. You’re already square with Uncle Sam
Each year, there’s a minimum amount of income tax you need to have withheld to avoid underpayment penalties. One way to figure the minimum is based on your previous year’s tax bill and adjusted gross income.Â
- If your AGI was less than $150,000 or less, you must pay 100% of the previous year’s tax bill.
- If your AGI was more than $150,000, you must pay 110% of the previous year’s tax bill.
This is a later-in-the-year strategy. If you’ve already hit the minimum threshold for your AGI and your income has stayed roughly the same compared with the previous year, you may want to drop your withholdings and put the extra cash to work. “Drop it into 5% Treasurys and keep it there until it’s time to file your taxes,” suggests Frank Remund, a certified financial planner and enrolled agent with New York-based Savvy Advisors, a financial technology firm. While you may end up needing to pay more taxes at filing time, you’ll avoid a penalty and get to keep the interest—instead of the government.Â
5. Changes to the tax code
While headlines about the tax code may not be on your “most clicked” list, they could signal that a W-4 update is in order. A key year to have on your radar for potential—and drastic—tax code changes is right around the corner.
The Tax Cuts and Jobs Act—the 2017 legislation that ushered in changes to income taxes and deduction—sunsets at the end of 2025. “So unless Congress does something to extend it, lots of people will have W-4 adjustments to make,” says Hulstein.
At sunset, tax brackets would switch back to pre-2017 levels—which are higher than today’s—and deductions would change significantly as well. It’s a potentially wicked stew, but with proper planning, you can use your W-4 to keep as much money in your pocket as possible.
‍
How to Use a W-4 to Boost Your Take-Home Pay
Life moves fast. In the blink of an eye, marriage, divorce, starting a family, pay raises and layoffs can change your financial landscape. Luckily, there’s a form—one you may have long forgotten—that could help boost your take-home pay when life’s twists and turns arrive.
When you start a job, you fill out a W-4 to determine how much of your salary should be withheld for income taxes. But over time changes to life circumstances—combined with changes to the U.S. tax code—lead many Americans to overpay.
The upshot: Your W-4 is a powerful tool that can give your monthly take-home pay a welcome lift—that is, after your HR department processes it through their payroll service (which could take a pay period or two). Just remember: Reducing your withholding will also reduce your tax refund come tax day. And be careful you don’t overdo it and end up owing the IRS money as about one in 13 Americans do each year.
‍
What is a W-4?
Internal Revenue Service Form W-4: Employee’s Withholding Certificate, tells your employer how much of your pay to withhold for income taxes. Your withholding amount reflects answers to a number of questions about your filing status: how many jobs you have, if your spouse works, if you have any dependents, whether you expect tax credits and additional withholdings or if there are deductions you anticipate taking on your current year’s tax return (which you’ll file the next year).Â
If the thought of revising your W-4 and re-answering all those questions gives you the shivers, it’s understandable, says Andrea Harrington, a certified public accountant with FML CPAs in Glastonbury, Conn.
“It’s a terrifying form—kind of a math puzzle,” says Harrington. To keep stress levels down and your withholdings dialed in, she suggests an annual approach to W-4 adjustments. “Just think about it once per year, as part of your broader financial checkup.”
Five reasons to adjust your W-4
While life events warrant W-4 updates, experts say there are also strategic reasons to revisit your form and tax withholdings. These five circumstances can tell you it may be time to give the IRS a bit less and your bank account a bit more.
1. You got a large tax refund
If your most recent tax refund was eye-poppingly large, it could be a sign that you need to adjust your W-4. After all, every penny of that refund is a 0% interest loan to the federal government—a pill that many clients find tough to swallow, says Corey Hulstein, a certified public accountant at Modern Wealth Management in Kansas City, Mo.
By adjusting your W-4 withholdings downward, you can score a near-instant pay raise. How much? If your last refund was $2,500, a W-4 adjustment could put just over $200 more in your pocket each month. Then, you can stash the cash in a high-yield savings account to earn even more.Â
To get the biggest income boost for the year, Hulstein recommends updating your W-4 as early in the year as possible.Â
2. You’re eligible for substantial tax credits
Certain federal and state-level tax credits such as those for energy-efficient home improvements or an electric vehicle purchase can significantly reduce your year-end tax bill. Adjusting your W-4 is probably wise if you’ve already made the investment or plan to in the coming year.
“I see a lot of clients putting in solar,” says Hulstein. “That’s a 30% tax credit, and those systems aren’t cheap.” There is no annual limit on the tax credit you can receive for installing a solar system. Meanwhile, purchasing the right electric vehicle could also score you a credit as high as $7,500. Since tax credits are dollar-for-dollar reductions to your tax bill, claiming one or both of these credits may mean that you can make a drastic reduction to your tax withholdings for the year.Â
Determining your eligibility for a particular credit can be tricky. If you choose to work with a tax professional to figure it all out, Hulstein suggests finding someone who specializes in tax planning and not just tax preparation. Tax planners are often more adept at reviewing your past, present and future tax liabilities to help you maximize credits and take-home pay.
3. You bought a home or took out a home-equity loan
During the first year of homeownership, you can rack-up serious deductions, including for closing costs and mortgage interest. And with home prices still at historic highs, buying one could make you eligible to itemize and reduce your tax burden for the year.
To tip you over from the standard deduction into itemizing territory on your 2024 taxes (filed in 2025), you’ll need deductions totaling at least $14,600 if you’re a single filer and $29,200 if you file jointly. With 30-year mortgage rates currently in 7% territory, a $750,000 mortgage would rack-up more than $50,000 in interest its first year; a $300,000 home could send a single filer to itemized deductions with first-year interest ringing in at $21,000. Interest paid on home-equity loans and home equity lines of credit, or Helocs, can sometimes qualify, too.
4. You’re already square with Uncle Sam
Each year, there’s a minimum amount of income tax you need to have withheld to avoid underpayment penalties. One way to figure the minimum is based on your previous year’s tax bill and adjusted gross income.Â
- If your AGI was less than $150,000 or less, you must pay 100% of the previous year’s tax bill.
- If your AGI was more than $150,000, you must pay 110% of the previous year’s tax bill.
This is a later-in-the-year strategy. If you’ve already hit the minimum threshold for your AGI and your income has stayed roughly the same compared with the previous year, you may want to drop your withholdings and put the extra cash to work. “Drop it into 5% Treasurys and keep it there until it’s time to file your taxes,” suggests Frank Remund, a certified financial planner and enrolled agent with New York-based Savvy Advisors, a financial technology firm. While you may end up needing to pay more taxes at filing time, you’ll avoid a penalty and get to keep the interest—instead of the government.Â
5. Changes to the tax code
While headlines about the tax code may not be on your “most clicked” list, they could signal that a W-4 update is in order. A key year to have on your radar for potential—and drastic—tax code changes is right around the corner.
The Tax Cuts and Jobs Act—the 2017 legislation that ushered in changes to income taxes and deduction—sunsets at the end of 2025. “So unless Congress does something to extend it, lots of people will have W-4 adjustments to make,” says Hulstein.
At sunset, tax brackets would switch back to pre-2017 levels—which are higher than today’s—and deductions would change significantly as well. It’s a potentially wicked stew, but with proper planning, you can use your W-4 to keep as much money in your pocket as possible.
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