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Tax Refund: Time To Evaluate Your Withholding Allowances

What would you rather have, a lump sum tax refund of $2,600 or monthly payments of $216 for a year?

OnTrack WNC suggests that consumers review their withholding allowances to make sure that the proper amount is taken out of each paycheck. “While nobody wants to end up owing taxes on April 15th, you also don't want to over withhold and have too much of your hard-earned money coming out of your paycheck each month,” said Celeste Collins, OnTrack WNC Executive Director.

Many people are excited to receive an income tax refund, but what they don’t realize is that the government is simply giving them back their own money. It’s not a windfall and it’s not winning the lottery. Not only have they paid in too much money, the government is returning it to them without benefit of interest.

Oftentimes, the very people who look forward to an income tax return are those who have struggled all year long financially, falling behind on critical payments such as rent and vehicles and may have even resorted to high interest credit card debt to meet living expenses. An extra $200 per month would have given them great relief throughout the year. The goal is to have your withholding match your actual tax liability. If not enough tax is withheld, you will owe tax at the end of the year. If too much tax is withheld, you will get a refund, but you lose the use of that money until you file your taxes again and receive your refund.

The remedy is simple. Go to www.irs.gov and type “withholding calculator” in the search box. This will take you to a program similar to a W-4 worksheet, but most people find the calculator to be easier and more accurate. Consumers can use the results to complete their W-4 before submitting to their employer.

“Workers need to be aware that they can change their W-4 at any time during the year, and certainly should do so if they’ve had a personal or financial change in their life,” Collins continued. Examples of personal changes are divorce, marriage, birth of a child, the purchase of a new home, or retirement. Financial changes would include you or your spouse starting or stopping work.

It’s always fun to receive a big check in the mail, but not if you’ve struggled all year. For help getting your financial house in order, call OnTrack WNC at 828-255-5166 to schedule a FREE one-on-one financial counseling appointment or to sign up for an education class to learn how to manage your money and credit better.

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