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how to minimize federal withholding from your paycheckThere may be a way to unlock some extra cash for the holidays right under your nose.

If you're getting a tax refund of more than $500 come springtime, it means you are giving the government an interest-free loan on your earnings. In 2011, more than 102 million people got average tax refunds of $2,805, according to the Internal Revenue Service.

While that's an excellent way to ensure you're saving some cash for big bills in 2012, you could plan to get a smaller refund and maximize your holiday-time paychecks instead. That could be the difference between staying debt-free and having a big credit card bill after the holidays.

This week, grab your your pay stub and W4 form, and find an online calculator to quickly re-examine the number of withholding allowances you're making and where you stand with your taxes. You might be able safely lower your withholding for December without creating a tax bill in the spring.

For example, if you are single and making $3,000 per month before taxes -- or $36,000 annually -- and have claimed no exemptions, then you're paying $391 in federal taxes every month, which is the maximum amount, according tax research specialist Lindsey Buchholz with H&R Block's Tax Institute.

But if you qualify for one exemption, that could add $46 more to your wallet. Two exemptions and that's almost $100 more a month. If you're single with two kids and haven't taken the maximum allowances, that could add up to an extra $185 in take-home pay.

She cautions that not everybody is in this boat. "If your situation is similar to last year and you got a bit of refund for 2010, then you can put more into your income," she says. But if you owed taxes last year, then don't cut your withholding, or you'll have a tax bill in April.

Revisiting your W4 is also especially critical if your circumstances changed this year. For example, you might have had a new baby, adopted a child, gotten married or divorced, or made new home purchase. Personal finance magazine Kiplinger's has a calculator that gives an estimate of what an additional allowance would mean for your take-home pay.

In one case I know of, a young guy, married in 2009 but with no children, realized months after starting a new job this year that his W4 had been mistakenly submitted as single with zero allowances. Using a worksheet, he figured out he qualified for at least two. That change boosted his monthly net income by 30% and allowed him to pay down high-interest credit-card debt left over from the wedding. Now, he also has a little more cash on holiday presents without sinking into more debt.

The more allowances you claim, the less tax is withheld. But again -- proceed with caution. This only works if you've been getting a nice-sized refund each year.

Check with your company's human resource department to make sure that your resubmitted form is processed as soon as possible to get the bump in your next few paychecks. If you want to return to higher withholding level at the start of 2012, you may have to submit another W4 after the new year.

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