We established in an earlier post that a lot of people will be getting a tax refund and it will average around $2800. That’s quite a big chunk of change. But is getting a tax refund a good thing? A lot of people think that if they’re getting a refund that it means they did something right or maybe they are somehow putting it to the government by getting money back. Unfortunately, that’s not really the case.
The money you get back in a refund is YOUR money! It means that throughout the year you’ve paid too much to the government. They’ve been nice enough to hold onto it for you all year and not give you any interest on it so that you can file a bunch of paperwork and get it back. In fact, since the government tends to spend more than they collect, the money they’re giving you back was probably borrowed from China. How’s that for scary?
Why wouldn’t you want to get a tax refund? Like I said before, you’re not getting any interest on that money. Plus, if you’re someone who has a hard time making ends meet each month it could be because you’re paying too much of your money in taxes only to get it back next April. That’s money you could be using to help pay off debt, invest for retirement, or save for college or a new car.
So how do you go about eliminating your tax refund and bringing more of that money home? Follow the steps below.
- Look back at the previous year’s refund amount. Do you expect any major changes in your life that might affect your refund one way or another? For example, are you getting married, having a kid, buying a house, etc. If so, you may want to use discretion later on.
- Take the anticipated refund amount from the previous year and divide it by the number of paychecks. If you anticipate getting a $1000 refund and are paid biweekly, that comes out to be about $38.
- Talk to HR or payroll and adjust your W4 exemptions until your paycheck amount increases by the amount you calculated in step 2. If you want to play it safe you can adjust your exemptions so only half of the amount you calculated is back in your paycheck. One important thing to remember: The exemptions on your W4 do not have to match the number of people in your family. They only tell your payroll department how much to withhold for taxes. I know, blah blah blah.
- If you need help calculating the number of exemptions you can go to Paycheck City and enter in your information into the calculator until it’s close to your current paycheck. After that, you can adjust the exemptions and see the difference it will make to your paycheck.
If all of that sounds too difficult and you get a huge tax refund, try increasing your exemptions by just 1 or 2. You’ll likely still get a refund next year, but at least you’ll have reduced it a bit. Then you can increase your exemptions by 1 or 2 the next year until you get your refund down to almost nothing.
Remember, tax refunds aren’t necessarily a good thing. If you get a tax refund this year, celebrate it by spreading your refund out across the entire next year!
Hopefully you’ve found this post helpful. If so, please share it with others. Have any questions, comments, or suggestions? Please post them in the comments below.
Featured Image courtesy of basketman / FreeDigitalPhotos.net