If you are one of the millions of Americans that are unable to meet their monthly debt obligations, but are having trouble figuring out why, it may be because you are withholding too much from your paychecks for income tax. Although it may not be the only reason, one simple change to your withholding, could put more money in your pocket each pay period.
The purpose of this blog is not to discourage or prevent individuals from filing bankruptcy, because it is often still a necessary part of the solution, but rather to provide advice on how to make the fresh start that bankruptcy provides a successful one!
When individuals struggle to meet their obligations each month, one possible source of the shortfall that is often overlooked is how much is being withheld for income taxes from each paycheck. Commonly we find that potential clients are having more withheld from their paychecks than is necessary, which results in a decreased NET income. In turn, the effect of this withholding is two-fold—1) there is less money to go around each month, and 2) the individuals receive a large refund.
It is a commonly held belief that getting a large tax refund is a good thing, after all, no one wants to pay more taxes. Some may use the refund as a form of savings and then pay off many bills at once, however, when you consider the interest you are being charged by your creditors, you will see that it is not a form of savings at all. If you were getting more in your pocket every month and paying your obligations on time, that is how you would be saving.
To put the concept into practice, if you find that you are constantly coming up $300.00 or so short at the end of every month, but you are regularly getting a tax refund of around $4,000.00, that $4,000.00 refund equates to about $330.00/month that could be landing in your pockets instead.
If the above example sounds similar to your situation, I recommend speaking to a tax professional because you could be over withholding on your paychecks—it is important to consult a tax professional because there could be other factors to consider. In the meantime, if you want to evaluate your own tax withholding, there is a link on our website to a tax withholding calculator provided by the IRS.
If you have fallen too far behind on your bills and need a solution, please do not hesitate to reach out to Minnesota’s nicest bankruptcy law firm at LifeBackLaw.com for a free consultation to find out how we can help. We look forward to hearing from you and helping you get a handle on your debt and get your life back!