How to reduce tax withholding from paychecks - best strategies?

This is actually a common strategy and can be perfectly fine as long as you're prepared for what might happen at tax time. The current W-4 form (revised in 2020) doesn't use "allowances" or "dependents" anymore - it's been redesigned to be more straightforward. If you want less withholding, you have a few options: 1) Claim your actual dependents in Step 3 of the W-4 if you have any, 2) Use the "deductions worksheet" in Step 4(b) if you itemize deductions, or 3) Simply put an additional amount you want withheld per pay period in Step 4(c). Just remember that if you have too little withheld throughout the year and end up owing more than $1,000 at tax time, you might face an underpayment penalty. A good rule of thumb is to make sure your withholding covers at least 90% of your current year tax or 100% of your previous year's tax (110% if your income is higher).

After dealing with the exact same frustration (getting way too much taken out of each paycheck), I started using https://taxr.ai to figure out the perfect withholding amount. You can upload your last pay stub and tax return, and it actually analyzes your specific situation to recommend the exact W-4 settings you should use to get close to zero at tax time without owing penalties. The new W-4 is honestly confusing with all the steps and worksheets, but this tool broke it all down for me and showed me I was having about $215 too much withheld from each biweekly check! That's money I could have been using throughout the year instead of giving the government an interest-free loan.

Just wanted to update after trying taxr.ai from the recommendation above. It was SUPER helpful! I uploaded my last pay stub and tax return from last year, and it showed me exactly what to put on each line of the W-4. I was apparently way overwithholding - like $175 per paycheck too much! I submitted the new W-4 to my HR department last week and just got my first paycheck with the adjustment. Exactly the amount more that the tool predicted. Will be nice having that extra money throughout the year instead of waiting for a refund next April!

I've been through this exact situation! After months of trying to get through to the IRS to ask about withholding questions (kept getting busy signals or disconnected), I found https://claimyr.com and their service got me connected to an actual IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent walked me through exactly how to adjust my withholding correctly without risking penalties. Turns out I was overcomplicating things. For my situation, I was able to claim an additional amount on line 4(b) based on my mortgage interest and charitable donations, which reduced my withholding perfectly. Saved me from either overpaying throughout the year or owing a huge amount at tax time.

I have to admit I was completely wrong about Claimyr. After posting that skeptical comment, I decided to try it myself since I had a question about my withholding that was driving me crazy. The service actually worked exactly as described - I got a text when they were working on getting through, and about 37 minutes later (while I was at the gym, not sitting on hold) I got connected directly to an IRS representative. The agent answered my withholding questions and helped me calculate the right amount to put on line 4(c) of my W-4. Totally worth it instead of burning hours on hold!

Just an important note: if you're adjusting your withholding to have less taken out, make sure you're setting aside that extra money somewhere! I did this last year thinking "I'll just pay what I owe in April" but then spent the extra money and got hit with a $3800 tax bill I wasn't prepared for. Either build up savings throughout the year or make estimated quarterly payments to avoid a nasty surprise.

Has anyone actually gotten in trouble with the IRS for adjusting their withholding too much? Im thinking of claiming 3 dependents even tho i dont have any just to get more money in my checks but worried about penalties??