Are you among the taxpayers that get a tax refund every year?  It’s amazing how excited people get when they find out they are getting a tax refund.  Don’t get me wrong getting a lump sum of money is ALWAYS a good thing, as long as you use it wisely.  But when it comes to a tax refund it may not be such a good thing.  See a tax refund is simply the government returning YOUR money that you overpaid throughout the year.  Yes, YOUR money that you could’ve been using throughout the year to save, invest or pay down debt.   Instead you loaned it to the government interest free.  Now some people think that getting a refund is ok because they see it as a way to save without having to think about it, BUT is it? I mean someone else is in control of your money until it is returned to you.  And while most taxpayers intentions is always to use the refund to get ahead financially, actions tend to be different.  Don’t get me wrong I’m not passing judgement here, I too have received tax refunds in the past and may have gone on a shopping spree or two.

I’m sure by now you are wondering what you can do about it.  Well it’s really simple, you have to adjust your tax withholding on the  W-4 form with your employer.  The reason you are getting a refund is because too much money is being withheld each pay period.  To adjust the amount that is being withheld you have to first calculate the amount that should be withheld using one of several online calculators available including one on the IRS.gov website. (I recommend taking a look a this one.)  They walk you through what information you need and how to calculate it and there is even a short video.  A couple of things to remember according to the IRS.gov site, the information received is only as good as the information put into the calculator and the calculator works for most taxpayers.  Another thing to remember is that if your income or number of dependents change you will need to re-calculate your withholding to ensure the right amount is being withheld.  Now it won’t have a significant impact this late in the year but you can still go ahead and adjust it now and you will see the full impact next year.

If you are on the other end of the spectrum where you end up owing every year, you can use this calculator also. (I have been in this group as well.)  The goal here is to minimize the amount owed at the end of each year.

There are other ways you can minimize your tax but that is for another article.  Let me know in the comments do you normally get a refund or do you normally owe?  Will you be making any adjustments?