This blog entry is in celebration of the birth of bwsquared.com, a website devoted to wealth consciousness for today's Black Woman! In honor of this new beginning, I share a little known method of how to give yourself a raise.
Yeah, you heard me right. Why wait for your boss to give you a raise when you have the power? You can thank the government for this little trick. Remember all those forms you had to fill out when you were first hired. Well one of those forms, the W-4 to be exact, directly affect the size of your paycheck. Most people do not realize they have the right to make changes to that form as many times as they see fit.
How it works?
The W-4 form is used by the IRS to determine how much federal withholding to collect from each paycheck. The concept is fairly simple. The more exemptions you claim, the less they withhold and vice versa.
Typically, the government takes more money than necessary to cover your federal tax bill for the year. If you receive a refund every year, then chances are you’re over paying the government. In essence, you are giving them a 0% interest loan not due until the following year with your hard-earned money. Now try going to the bank and asking for a loan with the same exact terms. I can only imagine the look the banker will give you. I’m sure he or she will question your sanity.
Why it works?
The beauty of it all is the IRS does not audit the W-4 form unless you claim some outrageous number of exemptions. There were stories at the tax desk of a trucker that once claimed 99 exemptions on his W-4 and wasn’t penalized for it. I suggest you do not go this far. Why take the chance of raising any red flags, when a slight adjustment will be sufficient? As long as your withholdings cover your tax bill you will be in the clear.
What it actually is?
If you’ve figured it by now, this raise is not an actual raise. Bravo. It’s an advance on your own money you have already earned. I know, a complete oxymoron, right!
The amount of money your paycheck may increase by will vary depending on how much you make and how much is being withheld. In my own experience, I have seen my paychecks increase up to $10 – $40 per week. Now this doesn’t seem like much, but an extra $25 during my struggling times meant all the difference in the world. I used this method when my company was furloughed, which would have reduced my paycheck by a fifth. This helped lessen the blow. When the furloughs were over, I simply change the number of exemptions I claimed back to its original number.
When to use this secret weapon?
I advise the average person to use this method only in times of distress or with a distinct plan of action in mind. For the average person lacking tax knowledge, this method should only be used as a temporary means to access cash. Here’s a list of ways to make the most :
- Give yourself a personal gas holiday during the summer when prices are higher.
- Apply this method a few months before the holiday season to help with purchasing gifts.
- Invest it. If you have a 401K plan, funnel your new found dollars to your retirement plan.
- Blow it. At the end of the day, it is your money. Do with it as you please.
It is up to you to determine the best way to use this money. However you decide, make sure its use is intentional. It can be very easy to squander away those dollars with no recollection of where they went.
How to get your raise?
Head to your human resource department or simply ask your boss for a W-4 form. If you can’t wait until tomorrow, download the form here. You only need to fill out the bottom portion of the first page. Line 5 is the critical line. This is where you enter the total number of exemptions you want to claim. Let’s say you are currently claiming 0 or 1, try increasing that number to 5 and see what happens. Turn it in and wait a week or so for processing. Then you are done. How is easy is that?
Remember to change it back to the original number of exemptions in a few months; especially if you are not 100% sure you will cover your tax bill. The point is not to be too greedy. You do have the legal duty of paying the government its fair share, but you are not oblige to pay one red cent more.
If you are like me and want to have all your cash upfront, don’t be afraid to consult a tax professional. Do not run to a CPA. They will charge too much for the information you seek. Instead, a tax preparer at one of those national tax chains will do. They may charge you a nominal fee, if at all. Your best chance of getting this information for free is during the tax season from tax preparer. They will already have most of your information and will only need to know a few more details to do a quick and dirty calculation.
Add this lesson to your arsenal of money tricks. You never know when you will need this in a pinch.
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