Laying the groundwork for a tax refund requires some simple tax planning, a little research and some forethought. Reviewing your tax status, consulting your spouse when filling out your W-4s and taking advantage of several tax credits can help you increase your tax refund. TurboTax also can help decide which credits can get you the biggest refund.
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Review your W-4: Bigger refund or bigger paycheck?
When you start a job, your employer asks you to complete form W-4. This tells your employer how much federal income tax to withhold from your paycheck. The more allowances you claim on the form, the less income tax will be held back. This will give you bigger paychecks, but a smaller tax refund (or potentially no tax refund or a tax bill at the end of the year). Factors to consider when choosing the number of allowances you claim include:
- Claiming allowances for yourself, your spouse and your qualifying children and dependents
- Taking an allowance for filing head of household
- Claiming more than $1,500 for child and dependent care expenses
- Working more than one job
- Having a spouse who works
Claiming fewer allowances on your W-4 will mean smaller paychecks, since more tax will be withheld. This increases your chances of over-withholding, which leads to a bigger tax refund. That’s why it’s called a “refund:” you are just getting money back that you overpaid to the IRS during the year.
“Be careful, though,” cautions Caroline Thompson, an accountant and president of Thompson Accounting and Tax, Inc. in Buffalo, N.Y. “By claiming fewer allowances, you give the federal government your money for the year, tax-free.” If you’re OK with that, utilizing your W-4 can help bring a tax refund at the end of the tax year.”
You can use a W-4 Withholding Calculator to help you estimate what allowances to claim.
Revisit your filing status
Choosing the filing status that best suits your needs can influence the possibility of a refund. Your filing status determines:
- Your standard deduction
- Your filing requirements
- The credits you are eligible to receive
- The amount of tax you pay or the refund you receive
There are five statuses to choose from, but the three most common are: married filing jointly, married filing separately, single, and head of household. TurboTax can help you determine which choice most benefits your situation.
Claim the earned income tax credit
Working families, individuals, people who are self-employed and others who have a moderate to low income may qualify for the earned income tax credit. The EITC decreases the amount of taxes owed and may qualify you for a tax refund. To qualify, you must:
- Have a valid Social Security number
- Be a U.S. citizen, a year-long resident alien or a non-resident alien married to an American citizen or resident alien filing jointly
- Have income from self-employment, from an employer or from working on a farm
- Not be a claimed dependent or child of another person
- Have a qualifying child and be between the ages of 25 and 65, living in the U.S. for at least half the year
To receive the EITC you must file a tax return, even if you owe no taxes.
Include the dependent care credit
The child and dependent care credit is based on a percentage of the amount you paid for the care of a qualifying child or dependent. The total expenses you can claim are capped at $3,000 for one eligible individual and $6,000 for two or more. If your employer offers dependent care benefits, you are required to deduct this amount. A qualifying individual is:
- Your child who is under 13 years of age
- A dependent who is physically or mentally incapable of self-care and who lives with you for more than half the year, or
- Your spouse who is incapable of self-care and lives with you for more than half the year
To claim the credit, other criteria must be met.
- If you’re married, you are required to file a joint return.
- You can’t use a caregiver who is a spouse or parent of the child, your child under 19 years of age or another of your dependents.
- Each qualifying dependent and child must have a Social Security number added to your return.
- You must provide the name, address and Social Security number of your caregiver.