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I know this sounds counter-intuitive, but if you received a refund from the IRS, that’s not always a good thing.
If your payroll taxes are withheld, you may be withholding too much. If that’s the case, you just gave Uncle Sam a loan for about a year in which you earned no interest.
Sure, it feels good getting money back, although you’re better off using your money the way you’d prefer. So it makes good sense to double check your withholding taxes.
The simplest way to vet your withholding taxes is to use the IRS tax estimator. You’ll need paystubs and documents for other personal income. Run the numbers and see what it tells you.
You can use the results from the Tax Withholding Estimator to determine if you should complete a new Form W-4 and submit it to your employer. For example, checking withholding can:
- Ensure the right amount of tax is withheld and prevent an unexpected tax bill or penalty at tax time.
- Determine whether to have less tax withheld from each paycheck, boosting take-home pay and reducing refunds at tax time.
Don’t wait until the end of the year to check your withholding. If you’re over-withholding, you’re just increasing your loan to Uncle Sam.
