Changing your W-4 withholding can help you get through a recession, and keep the good times rolling.
UPDATE: The Treasury recently announced tax changes and updates in response to COVID-19, updates include an extension of the first installment of tax year 2020 quarterly estimated taxes to July 15, 2020. Some information in this post however requires additional IRS guidance and may require updating. We will update as soon as we receive additional guidance. Please see the latest information on tax deadlines and updates related to COVID-19 here.
Smaller refund, bigger paycheck
July 15, 2020, it's the deadline for filing your tax return. But hey, let’s look at the bright side:
- Taxpayers are receiving larger refunds. The average refund check for 2018 was more than $2,833.
- Taxpayers can get their fastest refunds possible with efile and direct deposit, getting what they overpaid through over-withholding returned to them quickly.
If you’re one of the nearly 75 percent of Americans who get a tax refund year after year, we can show you how to keep the good times rolling. With a little effort, you can start getting next year’s refund starting next pay day.
Sure, we all love our springtime refunds. But doesn't it make more sense to receive your money when you earn it? And you can do just that by filing a new Form W-4, Employee's Withholding Certificate, with your employer to adjust the amount of tax withheld from your paycheck. You'll enjoy instant gratification from a do-it-yourself pay raise.
Avoid costly mind games
You've probably heard that by over-withholding in order to receive a refund means you are effectively giving the government an interest-free loan. You're better off steering that cash into savings or investments that make YOU money. But there's an even bigger issue at play here.
Habitual refunds can play costly games with your mind—and short-circuit meaningful tax planning. A huge refund may feel like a heavenly windfall, but what it really means is that you probably overpaid thousands—maybe tens of thousands—of dollars in taxes and simply recouped your own money. This can be painful if it causes you to overlook the tax consequences of your financial choices during the year, such as deciding which stocks to sell, whether to buy a rental property, or whether to transform a hobby into a business.
The prospect of getting money back also can lead to laziness when you work on your return. There's a good chance you'll work harder to shave the amount of extra tax you owe than to pump up an already fat refund.
How much should you have withheld?
In general, getting more money in your paychecks means a smaller refund at tax time.
If you want more money in your paycheck but are worried about getting hit with a surprise bill at tax time, try our free W-4 Salary Calculator. Just enter some information from your most recent paycheck and tax return, and we’ll help you set up your W-4 to get the result you want—whether it's a bigger paycheck, or a bigger tax refund.
Get every deduction
TurboTax Deluxe searches more than 350 tax deductions and credits so you get your maximum refund, guaranteed.