When tax time comes every April, do you find yourself celebrating because you're getting a refund or griping because you owe taxes?
There's a way to avoid both.
The Internal Revenue Service (IRS) advises you to check your tax withholding from time to time as there are a number of factors that could determine whether you get money back or have to send more in.
It's important to remember that when you get a refund, it's YOUR money you are getting back, not the government's. By withholding too much, you're giving Uncle Sam an interest-free loan. This is money you could invest and put to work for you. Whether you would or not is a topic for a separate discussion.
In any event, when you have the correct amount taken out, you get closer to having a zero balance when you file your return -- no taxes owed, no refund.
What to do
In many cases, a new Form W-4, Employee’s Withholding Allowance Certificate, is all you need to make an adjustment. Just submit it to your employer, and the employer will use it to figure out how much federal income tax to withheld from your pay.
The IRS offers several online resources to help you bring taxes paid closer to what you owe. They include:
- IRS Withholding Calculator, an online tool that helps determine the correct amount of tax to withhold;
- IRS Publication 505, a guide to tax withholding and estimated tax; and
- Tax Withholding, complete information on withholding, estimated taxes, FAQs, and more.
Self-employed taxpayers, including those involved in the sharing economy, can use the Form 1040-ES worksheet to figure their estimated tax payments.
If they also work for an employer, they can often forgo making these quarterly payments by instead having more tax taken out of their pay.
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