One of your employees comes to you and states the following, " I'm considering amending my W-4 so that an additional $100 is withheld each week. That way I will get a bigger refund next year." 

How would you reply to your employee. Consider whether they legally can get away with this and any advantages or disadvantages of pursuing this course of action. Finally, if you were they, what would you do?

If they were me, I would compute my whole tax liability and take account of taxes already withheld in previous months and the future tax liability. Would leave appropriate portion for withholding in future months and the rest i would invest to earn more bucks as interest / dividend.

Step-by-step explanation

For an employee, it is legal to amend W-4  form for adjusting your withholding tax as the circumstances might require additional adjustments on his W-4 . The employee in this case, required by the circumstances to give a new W-4 form to the employer prior  to  1 December of the prior year or if the event occurs   in   December then, within 10 days from change in the previous number of allowances and withholding status.

A person may end up giving tax authorities an interest-free loan if one has    a lot of  money withheld from the  paychecks. However, there is a better way to manage the hard-earned money.

Instead, take home the money ,venture into investing in those proceeds and consequently earn the interest.

Alternatively, with the small held back from paycheck implicating an unexpected tax bill or even a penalty for underpayment and as a result, now the amount that has been held back should be utilized ,however as for going the option of $10 per week is not the wisest of an option as it cannot make a better alternative.

The figures as compared to $40 per month and $480 per year and this amount can be invested in Mutual funds / SIPs  or still, Insurance can be bought.

Advantage of additional withheld tax :
1. Reduces the tax liability at the end of the year, could save  from paying penalty if the amount already withheld is less as compared to total tax liability
2.Given the employee expecting some kind of lump some payment at the year end, in such case additional withheld tax help in covering the tax liability at the year end.

Disadvantages :
1. Having additional withheld tax  decreases the amount of income available for use during the year.
2. Government doesn't pay any interest on the amount withheld and refund at the year end, thus, it is better to keep the amount in saving bank account to earn accrued interest or to invest the amount to earn gains.

If they were me: If I want to earn an additional $10 that is withheld each week for my paychecks then I would compute my whole tax liability and take account of taxes already withheld in previous months and the future tax liability. Ensuring that an appropriate amount is left for withholding in future months as for the rest I would invest to earn more bucks as interest / dividend.

If they were me, I would compute my whole tax liability and take account of taxes already withheld in previous months and the future tax liability. Would leave appropriate portion for withholding in future months and the rest i would invest to earn more bucks as interest / dividend.