Eighty-five million and counting. That’s how many American taxpayers have already collected their tax refunds from the IRS this year. Another 25 million or so will get a check (or, increasingly, a direct deposit to their bank account) from Uncle Sam before the year is out. Average refund so far: $2,750.
If you’re a part of Refund Nation, enjoy your money. Then take this simple step to guarantee that you start getting next year’s refund starting next payday: File a new W-4 form with your employer.
CALCULATOR: Set Your Withholding Right
The W-4 is the form that controls how much income tax is withheld from your paychecks. The more “allowances” you claim, the less of your money goes to the IRS. And the 110 million or so refunds that will be issued this year are proof positive that more than 75% of all workers have too much tax withheld.
Fixing that mistake by filing a revised W-4 will increase your take-home pay. Think of it as a do-it-yourself pay raise.
It only takes a few minutes to fill out a W-4. Most of us do it when we start a job and never give it another thought. But you can revise your form at any time. If you regularly receive a refund, we suggest that you do it before your next payday.
So far in 2014, the average refund-receiving taxpayer has already overpaid his or her taxes by about $1,000. So you more than likely have already banked a fat refund for next spring. Fixing your withholding now will stop that refund from growing, by delivering more of your money to you as you earn it.
To fix your withholding, simply ask your company’s payroll office for a W-4 or download one here. Once you give a W-4 claiming extra allowances to your employer (not the IRS), your take-home pay should rise on your next payday.
Ah, but how do you know how many allowances to claim? Worksheets that come with the W-4 will help, and you can get detailed instructions in IRS Publication 505, "Tax Withholding and Estimated Tax". Or you can slog your way through the IRS's online withholding calculator.
The Kiplinger Way
But we've got a better idea. If your 2014 financial situation is likely to be similar to 2013's, take advantage of Kiplinger's Easy-to-Use Tax Withholding Calculator. Answer three simple questions (you'll find the answers on your 2013 tax forms), and we'll estimate how many additional allowances you deserve. We'll even show you how much your take-home pay will rise starting next payday.
Our quick-and-easy method is a helpful guide, not gospel. As noted, it's based on the assumption that your financial life hasn't changed dramatically. If you have a new baby, get a new job or have an adult child who qualified as a dependent in 2013 but won't in 2014, for example, the calculator won't reflect how such events will affect your tax bill ... or your tax withholding.
But for most Americans, our calculator will paint a reliable picture. That, in turn, should accomplish two important goals:
1) Get you motivated to grab a W-4 to pinpoint how many extra allowances you should claim; and
2) Get you more of your money as you earn it.