Comments: Getting a Tax Refund is Costing Americans Billions, Part 2

I started this series by writing Getting a Tax Refund is Costing Americans Billions. I followed it up with Comments: Getting a Tax Refund is Costing Americans Billions, but there were so many good, extra comments to this last post, I wanted to share them with you. Here's how they started:

I finally stopped being lazy and updated my W-4 last week. So instead of getting a $6,000 refund again next year, I'll be seeing over $100 extra in my check each week! Still, I will kinda miss that feeling of getting a big chunk of cash back every year. I won't miss not being the one making the interest on that money, though.

Yep. Good plan.

Next, here's a comment on the original comment:

There's another aspect of what Nick did that's worth noting. The W-4 doesn't tell you how much will be withheld from your paycheck based on the numbers you supply. Of course that's because it depends on your income as well as the number of allowances. However, it is often easy to estimate your approximate taxes based on the previous year's taxes. One thing that I find brightens my outlook after signing my taxes forms and mailing them off is to adjust my withholding for the current year.

Things happen. You won't have the exact numbers for your tax bill until the books are closed for the year. However, we re-examine our withholding a couple of times to try to hit very close to the mark. Typically, we do it right after the taxes and again at the end of the 3rd quarter. A perfect year for me is one in which I owe $50 in April.

It can be challenging trying to get your withholding right if your taxes fluctuate wildly from year to year. But if they're steady, it's relatively easy to set them accurately. Here's the final comment with a suggestion on how to do this:

The IRS withholding calculator is much more helpful than using just the W4 paper forms. You can factor in a little fudge factor in these numbers. The nice thing is that it estimates what you owe or refund based on current withholding and if you change your withholding.

Also...don't forget to change your state withholding (if applicable). Although the impact on your paycheck may be smaller, it still factors in to your year end number. I have gotten pretty good with my federal withholdings, but have always ignored the state. I just changed mine for the first time and I am now getting an extra $20 per paycheck.

Good points one and all. Now, for the rest of you -- have you made the change yet?

Comments

[Laine]

I did this when I got my mortgage on the place in SF. It got me an extra $1000 a paycheck based on the tax deductions I'm getting from the interest on the mortgage from hell. I have 13 allowances on my withholdings and still got a $6000 return!!!

[Laine]

$1000 per 2 paychecks I should say.

[Kay Bell]

Good post. I included it the inaugural Carnival of Taxes (linked to my name).

[Foobarista]

We have wildly varying incomes, so we use the "safe harbor rules" for withholding. We end up owning a lot at taxtime, but have an account where we do our own "withholding" and pay the taxes due out of it; any money left is our "refund".