Don’t allow a COBRA misstep to show its fangs and trigger thousands of dollars in potential penalties. Loren Elms, Payroll Administrator at Servant HR, shares five questions every employer should ask about COBRA to help keep themselves out of harm’s way. Get a primer on the following:

1. Is my company subject to COBRA?
2. Who qualifies for COBRA coverage?
3. How long does COBRA coverage last?

Get all five questions and Loren’s expertise on each in the video. Watch more ways to strengthen your HR here. If you can’t see the video above, visit http://youtu.be/_WwKJsrLdBs.

You pay your employees an hourly wage or salary. You know that number. They know that number. It’s the one they use to pay bills, put food on the table, fill their gas tanks and clothe their families. You remind your employees of that number on a regular basis by way of a paystub or check. But that number is just part of the investment you make in your employees.

Showing your employees a more complete picture of how and how much you are spending on them can help you hire and retain top employees, and assist in compensation analyses to inform your salary and wage decisions.

This complete picture is often called a “hidden paycheck.”

Employers invest so much more in their employees than just a base salary. One of things that human resources professionals can do is explain to a controller or accountant how much the business spends on the employee beyond base wage or hourly rate. Those things can include overtime pay, FICA tax, Social Security payments, unemployment compensation fund payments made to the state, workers’ compensation, and benefits such as health, dental, vision, life, disability and retirement. All those tangible dollars or benefits that are paid on behalf of the employees are part of the hidden paycheck.  A Human Resources Information System (HRIS) can tally up the numbers and uncover the hidden “pay” employees receive.

But a hidden paycheck isn’t for every business. Here are some pros and cons for employers to consider before proactively divulging their numbers.

PRO: They can bring to light your best assets.

For companies with robust retirement plans or benefits plans — paying for substantially more than 50 percent of employee benefits — a hidden paycheck can accentuate the positive. Other programs like tuition reimbursement, bonuses and commissions can be quantified and should be part of a hidden paycheck.

CON: They can uncover your shortcomings.

If you don’t have a strong benefits plan, you probably don’t want to draw attention to that fact.

PRO: They help make you competitive.

When an employer can quantify just how much an employee costs, you can use that information to execute a compensation analysis to see how competitive your company is in the marketplace. As a result, you might want to make wage, salary or benefits adjustments to help keep you well staffed and on a growth track.

CON: Employee response is unpredictable.

One risk of providing a hidden paycheck is that you never know how employees will react. You don’t want to come across as self-serving, as though you’re saying, “Hey, you’re lucky to have all these perks,” which would certainly bring a negative response. Instead, the hidden paycheck should be provided as a demonstration of the employer’s transparency and as a way of saying, “Yes, we value you. And here are the numbers that show how much we appreciate,” so the response will be more like, “Wow. I didn’t know you were covering all those costs on my behalf. Thanks.”

PRO: They can help you keep good people.

If you have spent time developing your employees to be valuable assets to your company, you don’t want them going anywhere. If they are only familiar with their annual salary total, they might be tempted to find a bigger number elsewhere. A hidden paycheck can help them understand that they are getting much more than what they see on a paystub, putting you in a better position to have loyal employees.

CON: They can encourage employees to look elsewhere.

If an employee sees his or her hidden paycheck and decides the numbers don’t add up in his or her favor, a job vacancy might be in your future. If you are taking steps to retain employees with a solid benefits plan, this should not be a problem. But if other parts of your HR machine aren’t in place such as employee engagement strategies, fair policies and a healthy company culture, an unimpressive hidden paycheck could be the straw that breaks the camel’s back.

PRO: They divulge administrative costs.

Besides the legal obligations and benefits you pay for each employee, there are administrative dollars spent. Equipment, office/building space, vacation time, holiday breaks — all of these things cost money, and it’s useful for employers to know how much they are spending or saving with their current choices and HR policies.

Generally, a hidden paycheck is a well-received, effective way to communicate the value an employer places on its employees. If you are interested in more information on producing a hidden paycheck, contact me, Mike Yoder, at 317-585-1688.

Through 2018, business owners will have new requirements to fulfill as part of the Obama administration’s healthcare reform or Affordable Care Act (ACA). The law spans 2,409 pages. In my experience with business owners, they typically aren’t interested in reading thousands of pages of legal details and spending an inordinate amount of time to learn the ins and outs of a reform. But it can be difficult for growing businesses to stay compliant because of the overwhelming bureaucracy, and triggers spurred by increasing employee numbers.

To keep things relatively simple, for 2013, here are three major HR-related requirements business owners need to fulfill to avoid getting into hot water.

1.      Beginning March 1, 2013, employers must provide employees with written notice about their state’s health insurance exchanges.

If you follow the news at all, you have heard about health insurance exchanges. Just last week, the federal government extended individual state’s deadlines to make a decision about who would be setting up their exchanges: the individual state or the feds.

The tricky part about the ACA’s deadline, as you may have guessed, is that these exchanges likely won’t be in place by March 2013.

The exchange is a virtual marketplace that allows individuals or small businesses to purchase health insurance. It’s mandated that each state have its own exchange. If a state sets it up on its own, it is responsible for vetting out prospective private carriers to become part of the exchange. This calls for a review of each carrier to make sure they meet and maintain the required standards. Individuals can then go on the online site and get quotes for insurance.

The debate around exchanges is especially because the ACA says states have to carry out the health insurance exchange projects out of their own pockets. Many states have said they weren’t going to do it. Indiana, for one, is struggling with the choice.

2.      On 2012 W2s filed in 2013, employers must report the value of employer-sponsored healthcare coverage for each employee.

For example, say I’m a dependent. My company pays $X and I pay $Y into my employer-sponsored benefits plan. The total value ($X+$Y) must now be included on a W2 starting next year.

No clear reason as to why we have to report this has been given. But a few things are sure. With this new requirement, insurance premiums will be more traceable, which relates to the tax value. The government currently knows our pre-tax contributions, but it doesn’t know the amount an employer is paying.

This requirement comes into play more clearly in 2014 when the so-called “play or pay” penalty takes effect. Essentially, if an employer of 50 or more employees doesn’t provide minimum health coverage and also a minimum employer contribution, the employer will pay a penalty. The W2 number in theory enables government regulators to make sure people are staying legal.

Employers of small businesses don’t need to be concerned with this rule — for now. Employers filing fewer than 250 W2s the prior year are exempt from further notice.

3.      Flexible Savings Account limits to no more than $2,500 is  effective on Jan. 1, 2013.

An FSA is an IRS-created program that allows employees enrolled in a qualifying high-deductible health plan (HDHP) to save for and pay for health-related things such as unreimbursed medical expenses. With an FSA, employees set money aside for impending medical expenses that may incur through regular contributions from their paychecks. When they spend money from their FSA, it is tax free. For example, an employee can choose to save $1,500 at the beginning of the year for their FSA. When that employee goes to the doctor’s office or pharmacy and uses the FSA card, they don’t’ pay taxes on the expense.

Currently, there is no limit on the amount an employer may contribute to an FSA, and generally the employee either uses the money or loses it.

The big advantage of FSAs for employers is they provide a tax shelter. With the cap on the amount that can be contributed, this tax shelter is diminished. In general, a disadvantage of FSAs for employers is that if an employee used the maximum amount of his FSA amount within the first few months of the calendar year and then quit his job, the employer is the big loser.  On the flip side, if the employee elects $1,500 and just uses $500 for an entire year, the employer wins by enjoying the tax shelter FSAs provide.

Broader repercussions for employers

Because of healthcare reform and its Medical Loss Ratio provision, there’s a push by insurance carriers to lessen or eliminate commissions for their brokers. With the MLR, health plans have to provide rebates to employees if employers’ percentage of premiums spent on reimbursement does not meet the minimum standards for a given plan year. If an employer gets caught spending less than the standard, they have to reimburse by actually writing checks to the employees.

As a result, carriers are looking for ways to cut costs. In the near future, commissions for brokers are going to look a lot different and, in some cases, are going away. The danger for employers is if you don’t have someone consulting or advising you and your employees, you are the one who is at risk. And with tougher, different rules, you need someone to hold your hand and guide you through the implementation of the healthcare reform.

Unique thing about Servant HR is we automatically have all the data we need to take the steps required to satisfy the ACA requirements. A traditional broker, for example, doesn’t have access to payroll. He can’t do the pay-or-play analysis.  We have much more access and abilities.

In the future, we will also see a shift to moving full-timers to part-time work. There will be a huge part-time market develop as employers begin to feel the pains of ACA rules and discover ways to avoid them. Employers have to figure out how to migrate through this landmine.

Watch this video to see Servant HR’s Leah Elms cover “Three Things Every Employee Should Know About Healthcare Reform.”

When you have an annual checkup, your doctor gathers a lot of information. Height and weight are measured. Your blood pressure and pulse are taken. Blood may be drawn. You answer questions about family history, current diet and medications. The doctor checks your ears, mouth, neck, heart, lungs, stomach, joints, spine, muscles and skin.

You and your doctor know that these clues work together to determine your overall health. Your doctor also uses these clues to recommend changes in your lifestyle to keep you on the healthy track. You can’t separate your diet from your blood pressure from your weight. You have to have an understanding of how these parts work together to take the best care of yourself.

Human resources works the same way. You know that benefits, payroll and risk management are part of an employer’s HR responsibilities, but if they aren’t considered together to see how the parts affect one another, your business won’t be as healthy as it could be. If your HR service providers aren’t working together to diagnose HR problems and detect HR opportunities, your business suffers. A full-service PEO or Professional Employer Organization is like a doctor asking all those questions. Consider the many services and service providers who may be working on your HR from afar, never collaborating or sharing information to make your business healthier.

HR Management

In small or medium-sized businesses, in-house staff people who wear multiple administrative hats are often the ones managing human resources. In these cases, the question becomes, “What level of training or expertise does your staff person have in dealing with tough HR matters?” It’s an important question to consider because human resources management isn’t as obvious or popular as other HR areas. All business owners know they have certain obligations associated with payroll and tax liability. But they might not realize there are actually more compliance issues related to HR management than payroll and tax. The reality is that a trained HR professional can help employers avoid costly missteps related to EEOC, DOL, FMLA, USERRA, PPACA, ERISA, GINA and the rest of the alphabet soup of HR compliance and risk.

HR management becomes more complicated as your business grows. With more employees comes more obligations. If your business has reached a certain level, you may choose to hire a professional with a PHR or SPHR certification. While this may be a smart choice for larger businesses, many small and medium-sized companies can’t afford to hire a full-time HR professional.

Benefits

Most businesses work with a broker to handle the benefits part of their human resources. A broker offers the employer a choice of different insurance benefits. Typically, the broker passes along some numbers to an administrative person on a yearly basis, and that person is tasked with understanding the benefits and passing along that information to any new employees or current employees who have become eligible for benefits over the course of the year.

Ideally, a broker should have an understanding of the different benefits plans available and the level of quality of different carriers. A broker should also understand the culture of your business so he or she can match that with the available benefits. Your benefits should be attractive to employees and a good fit for your organization so that your business can use the options as recruitment and retention tools.

Unfortunately, things like benefits have become so commoditized that the opportunity to maximize what benefits can do for you and your business is being overlooked.  Many brokers have tried to add services on the front end with increased communication and hand-holding at the employee level in order to compete in a marketplace that offers a more holistic approach, but they often fall short.

Payroll

Most businesses use some sort of payroll service to make sure employees receive the correct amount of pay on time, and to make sure related tax issues are handled appropriately. When a company chooses to handle payroll in house, it’s often a control issue by the ownership in which someone doesn’t want any confidential information leaving the company. Another reason for handling payroll in house is in a situation where the accounting is atypically complex. For example, if a manufacturer does a lot of piecework, or an engineering or construction firm needs to track how an employee is spending his or her time on projects to determine their contribution to the bottom line, an in-house software program customized to a particular pay setup might be the smartest choice.

Risk Management

At Servant HR, we often hear the misunderstanding that risk management pertains to only worker’s compensation and liability insurance. Employers are often getting this impression from commercial insurance brokers who — you guessed it — provide worker’s compensation and liability insurance. Employers can mitigate risk on a much broader level, and a PEO can often help businesses recognize these opportunities.

Some risk management-related niches cater to certain industries such as construction and healthcare, which require property and casualty insurance coverage. There is often a discount available to employers when they bundle this coverage, so cost savings are a big motivator for employers who may view insurance coverage as a necessary evil.

But things can be done to manage risk without buying up more insurance or bundling policies. This is where a PEO can offer guidance. Safety training can help minimize accidents. General job training can help employers ensure their employees are doing their jobs correctly.  Making sure individual employees are classified appropriately helps employers apply the correct insurance to that employee.  (Employees such as landscapers go under a certain code. But clerical employees in the office of a landscaping company don’t require the same coverage. A PEO can help you see these cost-saving opportunities.) Employers can follow up with claims to be sure employees who claim they are hurt are indeed hurt. Having policies in place that protect you as an employer is the best way to manage risk, which requires the expertise of an HR professional.

Retirement Services

When most employers think about retirement services, the first things that to mind are 401(k) plans and the less popular pension plan. Companies typically use financial advisors to manage 401(k)s. These relationships often start on an individual level, with the business owner using a financial advisor for personal reasons. As the business grows and the need for retirement services arises, the business owner may turn to this same person to recommend a plan for employees.

The challenge in this way of approaching a 401(k) plan for your employees is the owner’s priorities might not line up with the business goals. The owner is looking for a way to get as much of his or her income sheltered from tax, but that shouldn’t be the only motivation. You must also consider that employees across many earning levels should enjoy the rewards of the plan. It is imperative to have someone in place who understands not only how a 401(k) plan works but also how your company is organized. Who is the best person to assume responsibility for the performance of the plan, for example? Is a 401(k) the best choice or is a business better suited to use an SRP (simple retirement plan)?

HR Management + Benefits + Payroll + Risk Management + Retirement Services

Part of the beauty of a full-service PEO such as Servant HR is that a PEO looks at all of these parts of your human resources together so that your business can be as healthy as possible. We aren’t individuals working on services in silos. PEOs connect the dots of businesses’ HR issues. PEOs are set up to take care of employees from “birth to death,” or from the job application to the retirement party. Through the coemployment model, full-service PEOs also assume some of the risk associated with having employees.

The HR services PEOs provide are getting done in any size business in some way, shape or form with or without a PEO. Payroll has to get done, worker’s compensation matters have to be dealt with, and retirement benefits have to at least be considered. In many cases, businesses rely on some combination of different vendors and often in-house staff to carry out these tasks.  While this may be an effective process in some situations, it’s not always the best direction for managing a company’s HR needs.

To find out if a PEO is right for your business, download our guide “Are You a Good Fit?”

By Leah Elms, Customer Service Representative

Tis the season for vacations. Whether they’re going on a spring break or a summer getaway, your employees will be planning and asking for time off. While there are many documented benefits to taking that break from work, it poses a few challenges for managers, as well. Here are some key areas that will assist you in navigating the curves on the road of PTO administration.

Know Your Policy

You need to be familiar with your company’s current protocol for acquiring vacation time as well as the spending of that time. There are many puzzle pieces to your company’s plan: mandated time off, accrual rates and caps, carry-over or use-it-or-lose-it, state mandates to pay out unused time and termination considerations — to name a few. Clear documentation and presentation of those policies to your staff help to prevent snags from the beginning. Companies may choose a traditional method such as specified amount of days as vacation days, sick days, and personal days. Others may use a combined PTO system; in essence, this is one large bucket which allows employees to use their time as they see fit. Both methods have advantages and disadvantages for both employer and employee. Both methods can be powerful recruiting and retention tools. If you have questions on which type is the best fit for your company, Servant HR is here to help you consider your options.

Manage Your Policy

Be sure you have clear, well-articulated guidelines for PTO use in place. Can you imagine if all your employees decided to take off the same week? What a nightmare! You need to think through how much notice will allow you to adequately fill the schedule in their absence. Requiring employees to request the time off in advance, with the exception of an emergency, alleviates this problem. An understanding of what constitutes an emergency must also be expressed. Does car trouble qualify? What about an attitude-adjustment day? How ill does a family member have to be? There will be instances when two employees request the same days off and there needs to be consideration for seniority, previous days off or the reason for the request.  Consistent managing and administration of your guidelines will play a key role in the overall satisfaction of your staff and their perception of your company’s plan.

Encourage Your Policy

Don’t let all these details scare you from encouraging your employees to take their well-deserved time off. Many studies show overworked employees are less productive and more prone to stress, exhaustion and illness. Clearly, both you and your co-workers benefit from a little rest and relaxation. Ensuring that it’s relaxing for all parties involved just takes some well-designed, managed policies.

So, take the time to evaluate your current plan. If it comes up lacking, the experts at Servant HR can assist you in implementing a policy that suits your company culture and then — go take a vacation!

By Mike Yoder, CEO 

Since 2008, Fishers and Hamilton County, Indiana, have accepted dozens of accolades for being exceptional. Among the list are the following:

• #1 Top 10 Cities for Families in U.S. – The Learning Channel (TLC)
• Healthiest County in Indiana – Community Health Network
• Top 100 Best Places to Live in America (#8 Ranking) – Money Magazine
• #11 Best Place to Move in the Country – Forbes
• Best Place to Raise a Family – Hamilton County (#1 Ranking) – Forbes

Jeff Leffew, our founder and president, chose to plant Servant HR’s roots in Fishers because this is where he lives and is raising his family. He wanted his business to be a part of this booming community on the edge of Indianapolis. We see this kind of attitude a lot in Hamilton County. Employers and employees want their work lives and their personal lives to complement one another. A strong work life in which you are happy, well compensated and appreciated, for example, will have an effect on the quality of your life outside of the office.

Many of the elements that go into making a business an exceptional place to work fall under the area of human resources. It is our job at Servant HR to help employers set themselves up to be a positive part of their employees’ lives. This kind of positivity can benefit families and even entire communities. Empowering employers to be a positive force in their communities is an exciting part of our work.

Becoming an exceptional place to work

Many of our 60 clients ask how can they can be “best in class.” They want to know how they can become an “employer of choice.” First, employers must care more for the positive impact of such efforts on employees than they do about receiving a fancy accolade. Business leaders must have a desire to create a culture of not only financial success but also a place of stability based on more consistent employment, longer tenures and low turnover. An exceptional business is one that builds a culture of relationships and loyalty.

When Servant HR is evaluating a company’s culture, we evaluate a lot of areas, including policies and procedures, benefits, management and employee training and talent development. These are the types of things that would indicate if a company is stable and growing. If we find that an area is weak, we help the employer develop that area through our HR Coaching and Counseling.

Health care and benefits’ role

A reasonably robust benefits package can help a company attract and retain the right kind of people for its culture, taking one giant leap forward to becoming a great place to work.  As we can see from our federal government’s move into universal health care, the issue of benefits is a huge one, both locally and nationally. As a full-service benefits broker, Servant HR helps employers attract and retain employees, while being cognizant of how much more expensive health care has become. An approach to benefits should be holistic, using creativity to establish diverse benefits packages as well as more traditional health plans and 401k plans to support both short-term and long-term benefits.

One of the best ways to deal with the rising cost of health care is to help educate our clients on different options including consumer-driven health care offerings. Employees should understand the types of benefits they have, how to get preventive care when it is needed and how to participate in wellness programs if they are interested in them. For an increasing number of employers, health saving accounts are becoming an important part of their packages. This type of account helps employees make smart choices for their health and budgets.

Partnering with strong businesses

Fishers and the Indianapolis area is a great place to do business. One of the biggest advantages for Servant HR is that our focus is on small and medium-sized businesses that want to have the freedom to focus on revenue-generating activities and their core strengths. We can serve these businesses as their HR partners, helping them move toward becoming exceptional places to work. These types of businesses have found great success in Hamilton County.  We like being where we live and where smaller businesses thrive. It’s a great fit for who we are at Servant HR.

If you have questions about the path to becoming an exceptional employer, please contact Servant HR at 317-585-1688 or email [email protected]. 

(Photo above by Jennifer Driscoll, courtesy of Town of Fishers.)

The phrase catches your attention doesn’t it? After all, who doesn’t want free money? Well many employers actually do offer free money—through a retirement plan that matches employee contributions dollar for dollar up to a certain percentage. Simply enroll in your company 401(k) plan and contribute 3% to 5% of your pay, and you could get what amounts to an instant 3% to 5% raise!

Yet many employees are leaving this free money on the table. According to a survey by Hewitt Associates, 22% of 401(k) participants do not contribute enough to get the maximum company match.

Haven’t started yet? Servant HR administers many different retirement plans for our clients. Look through your employee handbook or talk to your benefits administrator to see what plan your company offers. Find out when you can participate in your employer’s plan, and follow these two simple steps.

1) Join as soon as you are eligible.

Ask for a copy of the plan booklet (called the Summary Plan Description, or SPD) to learn your plan’s rules and requirements. Retirement plan rules vary. Some plans require that employees be at least 21 years of age and have a year of service with the company before they can participate. Even part time employees can sometimes be eligible if they work a certain number of hours per year.

2) Contribute as much as you are able.

If you think you can’t afford to have much taken out of your paycheck, consider starting with a small percentage and increasing it by just 1% or 2% each year. Or, you could plan to increase your salary deferral any time your salary increases. Your contributions will be deducted from your salary pre-tax, and your investment will continue to grow, tax-deferred, until you take it out. To make changes to your contributions, request the proper form from your plan administrator. You might also have online access which allows you to make deferral changes through your plan’s website (though some plans only allow deferral percentages to be changed at certain points throughout the year).

Don’t worry. Any money that is deducted from your paycheck for your 401(k) plan, and any earnings on that money, is 100% “vested”—meaning that it will always be 100% yours. (There are some restrictions as to when/how you can take that money back out of the plan.) You do not necessarily have an immediate right to contributions made by your employer, however. Ownership of those funds is earned by providing years of service to your employer, according to a “vesting schedule.” These schedules can vary, so you should review your SPD for the specifics of your plan.

Your employer’s retirement savings plan is a key component of your future financial security. It is important for you to understand how your plan works and what benefits you will receive. Servant HR has helped many employees to understand and receive these benefits. And although you may not be able to contribute the maximum allowed by the IRS each year ($17,000 in 2012—$22,500 if you are over 50), you should try to contribute at least enough to gain the benefit of any matching funds your employer offers. Remember, it is FREE MONEY!

Learn more about the benefits of retirement savings at http://www.dol.gov/ebsa/pdf/savingsfitness.pdf

By Mike Yoder, CEO of Servant HR

Many employers may overlook the necessity of workers’ compensation believing it does not pertain to them or their company. But consider these two rather bizarre claims:

• An employee was proving that he could carry an air compressor and strained his back.
• An employee tripped over a dog and injured herself while meeting with a customer in the customer’s home.

Yes, you may have guessed it, these claims were found in court to be compensable. At Servant HR, we receive frequent questions regarding workers’ comp, such as:

• Why am I required to have coverage?
• Why do I have to pay when no one ever gets hurt on the job?
• Why do particular employees cost so much, despite having reasonably “safe” jobs?
• Shouldn’t health insurance cover any injuries?
• Does workers’ comp really have to pay if it is clearly the fault of a negligible employee?

By definition, workers’ compensation is an alternate way for employees to recover costs for work-related injuries, rather than suing their employers. Workers’ compensation includes an “exclusive remedy” component, meaning if an employee gets hurt at work, his bills and typically his lost wages, are paid. However, exclusive remedy also ensures that the employee can’t file a lawsuit against the employer, in most situations. It’s an exchange of rights and benefits for both the employee and employer. The workers’ comp system provides employees with the security of knowing they can recover for work-related injuries without the complexity and uncertainty of a lawsuit.

Workers’ comp can be thought of as an insurance policy for your company. Just like home owners and life insurance, you are required to regularly pay, even if you never have to use it. The rates are determined from the statistics and probability of an accident or hazardous situation for a particular occupation.

If a claim is made by an employee, a workers’ compensation insurer generally reviews the case and verifies any issues. As the exclusive remedy, any injury happening in the workplace is generally covered, even if an employee is negligent. However, an employer may choose to dispute a claim, for example, if he believes an injury is not related to work or is being put-on. Regardless, it is generally in the best interest of the employer to get the employee back to work even on limited duty, rather than being paid lost wages from the policy.

For answers to your workers’ compensation questions or to find out more about how Servant HR can help with all of your HR needs, please contact us today.

By Loren Elms, CPP, Payroll Administrator 

Have you ever wondered why we pay federal income tax? It might surprise you to learn that the U.S. government once relied mainly on customs taxes as its primary source of income. It was actually the enormous cost of the Civil War (1861-1865) that led to the establishment of the first federal income tax.

Several years later, in 1942, a “pay-as-you-go” income tax system was developed to ensure that everyone paid their appropriate taxes. This system is still in place today, as employers continue to be responsible for withholding a percentage of your paycheck for federal taxes. The amount withheld is based on several factors that you report using Form W-4:

• Your marital status – single or married (If you´re married, you can opt to withhold at the higher single rate.)
• The number of withholding allowances you claim. (Allowances determine how much money will be “ignored” when calculating your tax withholding.)
• Any additional fixed dollar amount you would like withheld from each paycheck.

The more allowances entered on your W-4 form, the less income tax the government withholds from your pay. This increases your take-home pay. However, if you have too little taken out, you’ll owe money to the government when you file your annual tax return. If you have too much withheld, you’ll get a refund. Although getting a large refund may seem like a good thing, it basically means you’ve given the government what amounts to an interest-free loan throughout the year.

You may want to review your withholding amount if any of the following is true:

• You had a big refund last year
• You owed more money last year than you could comfortably pay
• You had a life or financial situation change that affects the number of allowances you can claim or the amount of tax you will eventually owe (e.g., marriage, birth of a child, purchase of a home). You have 10 days after the event to file a new Form W-4 with your employer.

Most tax experts agree that the best course of action is to adjust your withholding so that your tax payments will equal your actual tax liability for the year. Worksheets are included with Form W-4 to help you figure out what changes you should make to your withholding amount. You may also find related IRS publications useful: Publication 505 (“Tax Withholding and Estimated Tax”) and Publication 919 (“How Do I Adjust My Tax Withholding?”). These publications, as well as an interactive withholding allowance calculator, are available at www.irs.gov.

If you file a new W-4 with your employer and end up with a bit more cash each paycheck, don’t automatically spend it. Consider opening an account where that extra money will earn you, and not the federal government, interest.