Tax season is underway and many people anticipate receiving a large refund after filing. If you’re like many Americans, you too are awaiting your refund check. But is this the best way to handle tax withholdings? The answer is no. Upon filing, you should owe the IRS nothing, but you should also receive nothing. Receiving an income tax refund means that your withholdings are incorrect and the government has been holding your money throughout the year. How do you avoid this?
It’s easy- make sure that your withholdings are in agreement with your tax liability. This way you will not end up owing the government money and the government will not be borrowing your money only to refund you later. By having the incorrect withholdings, you are essentially shorting yourself every paycheck. You are having too much taxes being withheld which could have instead been included in your net pay. If your withholdings are correct, then you will receive the most net pay- meaning getting the most of the money that you earned out of your paycheck.
The best way to do this would be to fill out a new W-4 provided by your employer. It is best to do this whenever there is a major change to your tax liability amount (if you get married, win a large sum of money through gambling, buy a home, etc.). It is imperative to make sure your withholdings are correct with the rise of identity theft. Unfortunately, receiving refund checks could potentially leave you liable to fall victim of identity theft. By not filing early and with the correct withholding amounts, all identity thieves need to do is forge documents with your social security number and bogus income amounts and submit the filing to the IRS. This will nullify your correct filing and a refund check will be issued and placed in the hands of someone who has stolen your identity.