What is a tax refund?
Do you have your tax goal in mind? It may be one of those things where if you don’t know it can hurt you.
Your goal at the beginning of every tax year should be to have withheld at least 90% of what you think you will owe for that year, but not much more.
Your employer, using tables supplied by the government, determines how much of your paycheck should be withheld based on information you provide on the Form W-4. Many changes could have occurred since you last filled one out. The W-4, can be amended at any time.
In January, your employer sends you and the IRS a Form W-2 that reports your earnings for the prior tax year and the total amount of tax you had withheld.
Now it is over to you for calculating how much more you owe or figuring out how much the IRS should refund you if you overpaid. The difference you owe is due on April 15th, the deadline for filing.
Remember you are in control of what can be taken from your paycheck when you fill out the Form W-4. Following the calculations given you will achieve the 90% rate.
When your calculations result in a refund you may feel good and think you are ahead. However, let’s really look at it. Let’s say you had the refund (which on average is $1,700) in a monthly amount ($141.66) and each month that amount was used to pay off a high-interest debt vs. having $1,700 in one lump sum. What would happen? You would have paid down the debt and had less added interest charges using it monthly. It’s only a guess what would have happened to the lump sum of $1,700. Chances are it’s use would not be as cost effective as used monthly.
Do you want a refund or your money monthly? Now is a good time to make that decision.
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