If you get an income tax refund, money is being taken from your paycheck that you could use right now. If you get an income tax refund, you are letting the government hold and use your money for a year without paying you interest. If you get an income tax refund, you are letting the government hold money that can be seized by other government agencies and some creditors.
Check your tax withholding so you are even at the end of the year. You don’t want to get a refund and you don’t want to owe additional taxes.
Review the amount of taxes withheld being withheld from your pay check. Everyone’s situation changes. A yearly review can help you avoid having too much or too little federal income tax taken from your paychecks. You want to have the correct amount taken out so you can be at a zero balance at the end of the year. The ideal situation is, no taxes owed and no refund due.
Changes in your life will impact your exemptions and the amount of tax your owe. You can fill out a new Form W-4, Employee’s Withholding Allowance Certificate, to change the amount of tax taken from your paycheck. You can do this anytime.
Your employer uses the form to calculate the amount of federal income tax to withhold from your pay. Making a change in the late summer or early fall can give you enough time to adjust your withholding before the end of the tax year in December.
The IRS has several online resources to help you bring withholding closer to what you owe. They are available on IRS.gov.
IRS Withholding Calculator – Online tool helps determine the correct amount of tax to withhold.
IRS Publication 505 – Tax Withholding and Estimated Tax.
Tax Withholding – Complete information on withholding, estimated taxes, FAQs, and more.
Self-employed taxpayers can use the Form 1040-ES worksheet to correctly figure their estimated tax payments.