The IRS offers a great way to put more cash in your wallet but they generally won’t tell you about it – and all that is required of you is that you fill out an easy form. Each year there are millions of people that get a tax refund from the government because they had previously overpaid their income tax. While it may seem like a great idea each year when you receive that refund, the reality is that the money you are overpaying the federal government is essentially an interest free loan you are supply to the feds. If you want to save money each year, you are much better off not expecting a refund.
If you work at paying just the right amount of taxes each year, you can end up saving yourself a lot of cash. That saved cash can be used to pay down or pay off debts throughout the year or put more cash into your savings account. By reducing debt and saving more, you are more financial stable throughout the year rather than during that one month you receive a windfall check. Most people who receive a refund will not use it for either debt or savings but rather as a splurge once a year.
To get rid of the annual refund, the only step you really need to take is visit your human resource department at work and request a form that will allow you to adjust your tax withholdings. The form is called a W-4 and for some it can be a bit confusing. Here is a break down of what the form actually means to help you fill it out correctly.
Allowance Claims – as a general rule, you should be claiming one allowance for you, one for your spouse, and one allowance for each child you have. The higher number of allowances you list, the less deductions will be taken from your pay as it designates lower tax withholdings.
Allowance Amount – for each allowance you have in the 2009 tax year, you’ll have $3650 worth of tax-free income.
Too Many Allowances – underpaying your taxes because you have too many allowances is a no-no and you could incur penalties for not paying in enough taxes.
If you consistently receive a tax refund each year, you really should consider a visit to your Human Resource department and alter your withholdings so you’ll start having more cash put back into your regular paychecks. If you are unsure as to how to handle your tax situation, you can visit the IRS website and use the calculator that will help you figure out your withholdings allowances before you go making changes to your W-4 form.