Adjust Your Withholding

Getting a big tax refund check from the IRS is so nice, right? You can always find a use for that money, whether it's a big-ticket purchase, paying off a debt, or just adding to your savings. But by getting that big refund every year, you're missing out on even more money.

It boils down to this: If you’re getting a sizable refund just about every year and you’re having federal taxes held out of your pay, you’re probably having too much held out for federal taxes. So when you get a big refund, you’re just getting your own money back. True, it’s sort of a mandatory savings account that pays off once a year, but you’re still losing money on the deal. That’s because the IRS gets to use your money for most of the year, without paying you any interest.

Wouldn’t you like to get your money all year long, rather than waiting ’til tax time?

What Do You Have To Gain?

Try this: Add up this year’s tax refund and divide by 12. That’s a ballpark figure for how much extra you could earn, every month.

Now, here’s where that “making money” thing comes in. Instead of letting your employer send that amount to Uncle Sam, just set aside that amount into an account that earns you interest. These days, that won’t be a lot, but a little is better than none, which is what the IRS gives you.

How to Change

Your employer may ask you in December or January if you want to make changes to your withholding. But you can request a change at any time; just fill out and hand in another Form W-4.

If you always get a big refund – and you’d rather have that money in your pocket every month – increase the number of personal allowances on the W-4 worksheet to have a tad more money taken out for taxes. On the other hand, if you usually owe taxes every year, you may want to decrease the personal allowances. If you need help, the IRS has a withholding calculator that can help you figure how much you need to hold out.

If you manage your withholding amounts correctly, you can get a little more in your paycheck – and still not pay any extra taxes at the end of the year.

Who Else Needs to Apply

Other than when you’re consistently getting big refunds or owe a lot at tax time, it’s a good idea to review and adjust your withholding when:

• Either you or your spouse have more than one job
• You have children, get married or divorced, or buy a home