Tshanina from Thrifty T’s Treasures emailed in the following tip:
I always cringe when I hear friends share their excitement about getting a tax refund. It’s as if they’re getting an unexpected bonus every Spring.
What they might not realize is that their tax refund is actually their very own money and the government’s been keeping it all year! Yes, you heard me right, the government has been earning interest on your hard-earned money!
How would you like to give yourself a raise?
If you consistently receive a tax refund every year, with just one simple step you can give yourself a weekly raise. All you have to do is change the withholdings on your paycheck.
Talk with your H.R. person at work and take a few minutes to change your withholdings. If you’re not sure what your withholdings should be, ask your tax person or accountant.
Amy Smyth says
Be careful with this. If you don’t pay ENOUGH to the IRS, you can be charged interest and penalties. You are supposed to pay the IRS as you make it. AND, be aware of the new tax code. Deductions that could be taken in 2017 could not be taken in 2018 OR the tax code changed the rules on deduction eligibility.
Dot W says
Talk to your tax pro before going in and changing withholding. I’m a tax preparer and I see people going in and changing their withholding because they want more in their pocket each week…..and then they find themselves paying out a chunk of change at the end of the year because they overestimated their deductions. The other biggie I see: A couple gets married, and then both go in to their HR dept and change their withholding to married 2. Unless you elect to withhold at the higher single rate, you will not have enough tax withheld (when you select married, the payroll tables assume that the spouse isn’t working at all, and so withholds at a lower tax rate). We usually suggest that at least one partner chooses single with zero exemptions on their withholding to make sure that they have enough at the end of the year. (it is NOT against the law to select single even though you are married–that designation just tells payroll which tax tables to use to figure your withholdings). Keep in mind that the HR department will not know all the details of your tax situation, and so they probably aren’t the best person to advise you of how to fill in your w-4.
Alex says
Just be careful that you don’t owe the IRS or you may have to pay a fee ontop of paying the taxes. Better to get some money back then to owe money. Additionally, with savings interest being as low as it is right now, even if your refund was thousands, you would only get a few dollars in interest.
Adrian says
We are a family of 4. My husband and I have both always worked full-time. In our 11 years of marriage, we have NEVER received a refund and have always owed the IRS. I feel like we are on a permanent payment plan that will never end. We each claim 0, yet we still owe each year. When people get huge refunds each year, I just don’t get it. My sister’s situation is very similar to ours, yet she gets $6000 back each year. How is this possible?
Alex says
There may be a difference in income tax bracket. Her business may withhold more from her paycheck, or a combination of other factors. First, are you using at least some standard deductions? You can make deductions based on how much you spend on categories like work expenses, childcare for work, medical expenses including your annual premiums. Are you paying a mortgage? the interest you pay on your mortgage can also be deducted. Hope this helps.
Randi says
Yes, I agree. Also having 2 children should lead to using some of the standard deductions if not the EIC. Along with dependents and our mortgage interest, another big one for me and my husband is deducting the interest paid on student loans and medical expenses.
Sarah says
This is why it would be good for you to calculate your withholding or run a tax projection/mock tax return. You can have 0 exemptions and have additional amounts taken out. I do 0 exemptions+ $50 per check (up from $32 last year). In past years it worked for Dh to take 0 exemptions and me to select “Married, withhold as single”. We ended up owing a small amount this year, but that was related to a larger than expected dividend — what we will pay next week represents 2.8% of our total federal taxes paid.
crystal says
I work freelance/ self employed, my husband has a traditional job. While we still get refunds every year, they get smaller every year, as both our incomes increase. We have talked about increasing my husbands withholdings, however, the way we currently have it, as we file jointly, his extra taxes cover my taxes. Since my income isn’t steady, we don’t change that, so that we don’t have to pay come tax season.
Tshanina | Thrifty T's Treasures says
Crystal, it sounds like you’ve found a system that works for you!
Anastasia Conrad says
For all the single people and couples remember to be charitable from donations of $2,000 to $5,000 yearly depending on income which will come from goodwill donations ($500 per a slip) to church and other organizations. This will make sure that you don’t pay taxes. Especially us couponers!!
Laura says
Bleh, we always have to pay. My husband has an average-paying job, I work a few hours part-time and my husband has a (very) small business on the side. The self-employment taxes are crazy. After our usual tithe to our church, donations and lots of Goodwill-type donations this year, and other deductions, we “only” had to pay $4,000.
When people say that small business owners pay more than their share of the taxes, they really aren’t kidding!
Angie says
I love getting a big tax refund every year. I always claim zero and always will. I look it like a savings acct that i dont have access to except once a year. I usually get it in feb which is great because after christmas it helps alot! If i got it through the year i wouldnt save it so no your method isnt for all. I dont mind the government holding my money for me cause i know im gonna get it all plus some back! I always look forward to tax time. I would hate to be one of the ones that dreads it and has to pay the irs.
Lea Stormhammer says
We’ve always had a fairly sizable withholding so we don’t have to pay the IRS and some “extra” to top off the retirement accounts at the end of the year. Our situation changed drastically this year and our tax person actually asked us to make sure we had sufficient withholding so we don’t end up paying a huge amount this next year. Our income went way down (we planned for this – it was a career change) but it would now be hard for us to come up with a huge payment this year if we had to.
Hopefully most of us can find the balance we need for our situation so we don’t end up paying a lot or getting a huge refund!
Thanks for sharing,
Lea
Tshanina | Thrifty T's Treasures says
Sounds like you have a smart tax person, Lea! I’m so glad he’s helping you prepare for next year!
Racehl says
My husband and I also recently adjusted our income to receive less of a refund. No only were we loaning the government money for free, but we realized this little extra each paycheck could be going towards paying off our student loans. So we are putting this extra towards debt to save in interest in the long run!
Tshanina | Thrifty T's Treasures says
Every little bit helps doesn’t it? How exciting to have extra to put towards paying off your student loans!
Leighann says
I’m not too worried about the government holding on to some of my money. I’m just not that phased about it, and our refund is perfectly timed for birthdays.
Michele says
While in theory this is true, for many people getting a tax refund is forced savings. And the piddly 1% interest (if that!) that a person would have earned from the bank throughout the year is not always worth the risk that the person would have have spent the small extra amount of money from each paycheck.
Karen Rucker says
THIS! If you aren’t a good saver, a tax refund can allow you to set money aside from each paycheck that you or your spouse might simply spend without thinking about if it were in your paycheck. And sure, you could invest that money. But if you are only going to get a tiny amount of interest, why take the risk?
Savannah says
It’s true that you won’t earn much interest from a savings account…but investing that extra $100 per month (totally theoretical number) into a good rate of return (~6%) account over a 12 month period would yield some pretty nice income!
Deborah says
A few years back I tried this advice, sadly it was an epic fail. =( I am single, no kids-maybe that was the reason but I had always gotten a refund, not huge but a little over $500. When I changed my withholding-on the advice of tax “professionals” I ended up owing the IRS over $500 and believe me when I say I had to scramble to come up with the money to pay them! I immediately went to the hr dept. where I work and changed it back to 0.
Tshanina | Thrifty T's Treasures says
I’m sorry to hear that it didn’t work for your situation, Deborah!
Cris says
I’ve heard this many years ago from Suze Orman, she says it’s like we’re lending money to the government at no interest… I changed mine then!
Jen says
Not everyone who gets a refund is having too much tax withheld. I paid a total of $14 in taxes last year but got a refund of a couple thousand using tax credits like EIC, education credits, and additional child tax credits.. This advice is not one size fits all.
Des says
This. We get a big refund every year and yes, we do pay some taxes…but our refund is WAY more than we pay. It has to do with size of family, income, tax credits, etc. Definitely not one size fits all. Not everyone who gets a refund is financially clueless…some of us are legitimately excited 😉
Brandette Winblad says
HUGELY THIS. Take it from an accountant and payroll administrator, be very very careful doing this.
What many people might take from this advice is that if you receive a refund – change your withholding on your W-4. This is NOT always the case.
Many people claim 0 or 1 and pretty much break even, not owing or paying too much throughout the year in payroll taxes. BUT, once they do their actual tax return come the following April, they find their getting back quite a bit of money. Those are due to deductions they can now claim on their return, a whole separate entity from their pay deductions. Also worth mentioning is that for many families, the tax liability and deductions change from year to year. Many people have change of status’s that lead to a different tax bracket or deduction and exemption because of things such as a new child, an older child aging off your tax return, education credits, a new mortgage, etc.
So many different facets go into determining your tax situation, just be careful taking this advice as a one size fits all, it does not.
Jessica says
Yes! We had a few extras to deduct this year because of a move and education deductions. Our refund was still the lowest it has ever been because our income bumped up to a new bracket.
Lori says
I know this is very true, but I still claim zero dependents on my W4.
I am single with no children, but due to serious medical issues and bad choices, I’ve incurred a lot of debt. I still don’t trust myself completely around money, and it scares me to owe to the IRS.
I am working hard on getting out of debt, and once I do that, I will re-examine my situation. For now, my refund goes towards my CC, or into my emergency fund.
Tshanina | Thrifty T's Treasures says
I don’t like owing the IRS either, Lori!
High five to you for working on paying off your debt!
LeahB says
Ugh…we’ve had such a weird tax situation that changes every year that it’s impossible to know what to withhold. We went from breaking even to getting a $6K refund to this year OWING a bunch. I long for the day when I can pick a withholding amount and stick to it.
Jen says
Unfortunately, our government doesn’t like those of us without spouses, kids, and/or a mortgage, so I have no idea what a refund is, even with claiming 0.
Lori says
Very true. I wish I could claim my furry baby as my kid, which is what I consider her to be. 😉 Her vet bills are quite high.
Tshanina | Thrifty T's Treasures says
That would be nice wouldn’t it, Lori! :O)
Patty says
This is great advice. I try to keep my refund around $500 or so to make sure 1) I don’t have to pay, and 2) I keep as much of my income during the year as I possibly can.
Rose says
However, be careful how MANY you claim, as we went from one extreme, getting too much back, to having to pay THEM $900 : (
Sarah says
If you don’t know what your withholding should be, you don’t necessarily need a “tax person or accountant” to figure it out. You can use the IRS’ withholding calculator, or do a mock tax return using projections for income and deductions this year and compare that to what you’re currently having withheld.
I think it’s in everyone’s best interest to understand basically how the tax code works in order to manage their tax burden each year. And let’s face it, if you’re capable of coupon-ing or playing the drug store game, you’re capable of figuring out your own withholding.
http://www.irs.gov/Individuals/IRS-Withholding-Calculator
Tshanina | Thrifty T's Treasures says
Thanks for sharing the withholding calculator, Sarah!
Sheris says
YES! I can’t believe that more people don’t realize this. One year we got a 12K refund and realized how ridiculous that was – we could have this money month to month! Changed our withholdings and were able to live much more comfortably.
Tshanina | Thrifty T's Treasures says
What a huge difference one small change made for you and your family!