Break-even or Larger Refund – Should You Adjust Your Withholding?
Are you someone who strives to break-even at tax time so you have more money each check? Or are you someone who likes getting the larger refund? Some individuals have a hard time saving throughout the year so they choose to have more tax withheld. In doing this they feel they can use the larger refund for that annual trip to the Bahamas or down payment on a house. Depending on which individual you are, you may want to adjust your withholding. You can check your year-to-date withholding on your paystub and see what you currently have withheld. At this point you could consider changing the taxes withheld, especially if you are expecting a big refund.
This is especially important if you are claiming the earned income tax credit(EITC) or the additional child tax credit. Why? The IRS is now required by law to hold all refunds on those returns until February 15th each year. The new law was put into place to allow the agency additional time to detect and prevent tax fraud. According to the IRS, one out of every five workers fails to claim the very valuable earned income tax credit. If you worked and earned less than $53,505 in 2016 (the limit will be $53,930 in 2017), then use the EITC Assistant tool on the IRS website to determine if you qualify for the credit. However, you must file a return in order to receive the credit so DO NOT miss out on this!
According to IRS Commissioner John Koskinen, “It’s a personal choice if you want to have extra money withheld to get a bigger tax refund, but you have options available if you prefer to have a smaller refund next year and more take-home money now.” Keep in mind, if you wish to adjust the amount of taxes withheld from your paycheck you will need to complete new Form W-4, Employee’s Withholding Allowance Certificate. This form will need to be submitted to your employer so the adjustments can be made on your paycheck.