If you received too big of a tax refund this year – more than you’d be expecting – you may need to make some adjustments. If the Federal Government, through the Internal Revenue Service (IRS), returned a large amount of money to you this year, it means that you have been lending money to the Federal Government without interest for almost a year. You will understand that it is a very bad idea and a very bad business to lend money to someone without that money generating a profit for you.
Fortunately, there’s a way to solve this mistake you’re making and start receiving your 2024 refund right now: The trick is to review and adjust the amounts withheld from your estimated tax payments to keep your money in your pocket for the year, until the IRS refund payment season arrives. According to Norman Grill, columnist for the Westfair Business Journal, you should start reviewing your withholdings and/or estimated tax payments today if you have experienced any of the following situations:
- If you received a particularly large tax refund in 2023.
- You got married, divorced, or added a dependent person to your household.
- You bought a house.
- You started a new job or lost the one you had.
- If the income from your investments has changed significantly in either direction.
Did You Get a Big Refund? Adjust Your Withhold Like a Pro
Grill explains that it is possible to modify your withholding at any time of the year and do it more than once if necessary to avoid losing money, or having the IRS keep more money than is due and then return it to you in a tax refund.
To adjust your withholding, you simply need to send a new Form W-4 to your employer. This form, also known as an Employee’s Withholding Certificate, is intended to inform your employer how much federal income tax should be deducted from your monthly paycheck.
The purpose of this form is to ensure that employees pay the exact amount of applicable federal income taxes during the year, and thus avoid an overly large balance or an excessively large refund when you file your tax return.
Receiving Gigantic Tax Refunds Is Not as Good as It Might Sound
The financial expert assures that reducing withholdings or estimated tax payments will allow you to have more money available now that you can invest and earn interest in other financial instruments. It’s better that you have the money and not that the IRS keeps it for a year, napping without generating any dividends for you.
It is a delicate balance, and you should always do it by seeking the professional help of an expert tax advisor, because if you do not pay enough taxes throughout the year you could end up owing interest and penalties when filing your return, even if you pay the outstanding taxes before the April 2025 deadline.
Who needs to complete a W-4 Form?
All employees in the United States are required to complete this form when they start a new job. And, just as we are talking about in this article, they must complete a new W-4 form if their financial situation changes, for example, changes in marital status, the acquisition of new real estate or the arrival of a child.
Use the IRS withholding estimator (http://irs.gov/W4app ) to help you estimate how much tax should be deducted from your paychecks, and thus avoid penalties and other problems with the IRS in the future.
