Each year, millions of taxpayers claim an income tax refund. To be sure, receiving a payment from the IRS for a few thousand dollars can be a pleasant influx of cash. But it means you were essentially giving the government an interest-free loan for close to a year. And that isn’t the best use of your money.
Fortunately, there is a way to begin collecting your 2017 income tax refund now. You can review the amount of federal and state income taxes you’re having withheld and adjust your withholding to keep more money in your pocket during the year.
Reasons to modify your income tax withholding
It’s particularly important to check your withholding if:
- You received an especially large 2016 income tax refund,
- You’ve gotten married or divorced or added a dependent,
- You’ve purchased a home,
- You’ve started or lost a job, or
- Your investment income has changed significantly.
Even if you haven’t encountered any major life changes during the past year, changes in the tax law may affect withholding levels, making it worthwhile to double-check your income tax withholding.
Making the change
You can modify your income tax withholding at any time during the year, or even several times within a year. To do so, you simply submit a new Form W-4 to your employer. Changes typically will go into effect several weeks after the new Form W-4 is submitted.
While reducing our withholding will put more money in your pocket now, you also need to be careful that you don’t reduce them too much. If you don’t pay enough tax during the year, you could end up owing interest and penalties when you file your return, even if you pay your outstanding tax liability by the April 2018 deadline.
If you’d like help determining what your withholding should be for the rest of the year, please contact us.