It’s the time of year that millions of Americans feel like they’ve just won the lottery.
A friend boasts, “I just got my $3,500 tax refund.”
His friend tries to suppress his smile. “Wow, that’s great. I got a $5,000 check this year.”
However, we all (at least we should) know better than that.
The larger the income tax return check you receive, the more money you’ve paid throughout the year. Of course, there are some exceptions for credits and things like that. But for most Americans, a tax refund check just means you paid the government too much money and they are now giving it back.
Consider these questions:
- Would you go into the grocery store and hand the clerk $250 every week for groceries and ask the store to write you a check at the end of the year if you over paid?
- Would you ever send an extra $25 when you paid a utility bill?
For the most part, we tend to pay what we owe and often even complain that we even have to pay that much – except when it comes to taxes.
When it comes to taxes, some people love having a huge withholding so they can get a big fat check at the end of the year. Is it a good idea to get a big tax refund check?
Get a Big Tax Refund: Reasons Not to Adjust Your Tax Withholding
- Extra tax withholding is literally the only way you’ll save any money. It is a zero percent loan you’re giving to the government, but at least you’ll have something when your tax refund check arrives. The only question is, can you manage that big check if you couldn’t manage the money along the way?
- Emotional peace. Some people are so intimidated by everything tax related. They just feel better knowing that at least they won’t have to pay any more taxes at the end of the year. They are worried that they couldn’t pay their taxes if more was owing.
- Income fluctuations. When your income fluctuates you might prefer to pay a consistent amount, even if it is too much, simply to be sure that if your income goes up you’ve been making the proper payments.
Get a Small Tax Refund: Reasons to Adjust Your Tax Withholding
- We spend earned money differently than free money. When people get a big refund check, they usually plan to buy something with the refund. Even though you’ve earned that money, it feels like free money because it is a check in the mail that is not directly attached to your hard work.
- You can earn interest on that money in the bank. Sure, you won’t save a lot of interest (especially right now), but something is better than nothing.
- It’s simple to do (see the steps below). If you do your own taxes, you know that they are not as intimidating as people can make them out to be. While there are very complicated elements to taxes, changing your withholding is very simple.
How to Adjust Your Income Tax Withholding
If you are getting a big tax refund and want to make adjustments to your withholding, it is really quite simple.
If you are self employed, just make your estimated quarterly payments based on what you should have paid last year (assuming your financial and family conditions will remain the same).
If you are employed, you will need to visit your HR representative and get a new W-4. The W-4 tells the company how much to withhold from your pay. Make the necessary adjustments to dependents in order to get the withholding to match tax liability from the previous year. The goal is not getting the number of dependents right, but getting the withholding right.
What about you? Will you be adjusting your withholding? Leave a comment!
This article was originally published at ChristianPF on February 24, 2011.