This time of year when I meet with clients I hear the same request over and over again, “Please get me a large refund”. I find it amusing that the same people who dislike paying taxes are willing to let the government have an interest free loan throughout the year in order for a large refund in April. I would think it was preferable to have a little extra in your pocket every month and either have a small refund or owe the IRS a little.
If you are having too much withheld and receiving a large refund at year end there is an easy fix. Your employer asks every year for you to fill out a W4 this is the document that helps the payroll department determine how much to withhold out of your paycheck. If too much is being withheld you need to do one of two things. Either reduce the amount of additional tax you are voluntarily asking to be withheld or increase the number of allowances you are claiming. Don’t go hog wild and claim 10 allowances so that no money is withheld from your paycheck because 2 things will happen. One you will owe a large chunk of money at year end and two the IRS will send you a “lock in letter” which will basically assign you the number of allowances you are allowed. The letter will go to you and your employer so be reasonable when you fill the W4 out. If the form causes you to have a panic attack ask your friendly accountant to help you fill it out. If reading and filling out forms is your thing the IRS has a publication to help you fill out the W4 form, just go the irs.gov website and search for Publication 919.