Maximize finances with appropriate tax withholdings Published Feb. 3, 2011 By Tom Snyder Airman & Family Readiness Center HURLBURT FIELD, Fla. -- It's been said, the only things certain in life are death and taxes. If you compare your December Federal Income Tax Withholding on your Leave and Earnings Statement to your January FITW, you will notice a difference. In some cases, it may amount to more than your pay raise. Even if a person's salary doesn't change, one's tax bill is likely to change because of new deductions being added or old deductions being lost. In addition, the number of eligible deductions may change, and a marriage or divorce may change one's filing status. By utilizing LES and Internal Revenue Service tax tables, people can determine the optimum amount of money they take home each paycheck without risking tax underpayment penalties. A common mistake people make is thinking the number of withholding allowances they can claim is limited to the number of their dependency exemptions. By not claiming the proper withholding tax from their checks, people are giving the Internal Revenue Service an interest-free loan. People are entitled to claim all of the allowances they need to balance the amount of taxes withheld from their pay with their final tax bill for the year. They can thus claim extra allowances to cover deductible individual retirement account contributions, large-itemized deductions, having a child, or getting married before the end of the year. About 75 percent of the population is not claiming the proper withholding tax. For example, an E-5 with a spouse and two children claiming single with no dependents (S-0), on his W-4 would pay approximately $361 per month in taxes. With the $1,000 per child tax credit, he'd owe no taxes for the year and give the IRS a $4,332 interest-free loan. By changing his W-4 to read married and seven exemptions (M-7), he'd save that $361 per month to either invest or pay off existing debt. The withholding tax reduction affects a person's income tax return. Instead of getting a lump sum of money after filing taxes, a person's return will be considerably smaller because he or she is receiving that money in monthly checks. This is not a negative result because the member is using that money in the present instead of waiting 12 months for it. People should calculate withholding taxes carefully because underpaying taxes is a serious issue. If people do underpay the IRS, they have to reimburse them for back taxes. That can be costly if people owe $500 or more because they're assessed a penalty-plus interest. By adjusting debt at the beginning of the year, a person can maximize their interest deduction for the year. The name of the game is to maximize your money as much as possible. The ideal scenario is to try to create a zero balance of debt with yourself and the IRS. If you are confused, need help or for more information on maximizing your personal finances, call Tom Snyder or Thelma Few, Accredited Financial Counselors at the Airman & Family Readiness Center at 850-884-5441/2.