Do you plan to get a big federal tax refund?
If you answered yes, I’m so sorry for you!
Why? Because that means you loaned the federal government money interest free for the entire year.
How do I define big federal tax refund? Generally speaking if your refund is greater than $1,500, you are having too much federal tax withheld from your check. If you are paid every other week, that is about $58 a paycheck. That is money you could use to pay off debt, save for your child’s college, save for your retirement or SPEND! Who couldn’t use more available cash?
So how do you have less tax withheld from your check? You contact the Payroll or Human Resources department at your employer and file a new W4. They should be able to tell you how many current Exemptions/Allowances you currently are withholding. This information may also be printed on your check stub.
The Internal Revenue Service has an online withholding calculator on their website www.irs.gov, but you need several pieces of information to complete. If you have recently filed your tax return, you should have most of this information readily available. You also need your most recent pay stub. Also consider life changes such as household income changes, changes in number of dependents, changes in housing such a new mortgage or the payoff of your mortgage, and changes in charitable contributions or business related expenses.
Some people like getting that big federal tax refund so they can buy themselves something nice. I would suggest you set up an automatic withdrawal from your paycheck into a special savings account. You will get the same results – cash to buy that item you have your eye on PLUS you will have some interest. You don’t have to wait on your refund when you see that special item on sale!
Just increase your exemptions/allowances by one and see how much more you take home next payday!
By: Katrina Harder, CPA, Centra Finance Specialist
More about Katrina: I live in the suburbs of Gnaw Bone, Indiana and am the single mother of 3 and the grandmother of 5. I completed my degree in Accounting attending school part time while working full time. I enjoy sewing, reading and the Cincinnati Reds!