Wow! You are getting a HUGE tax refund!..... WHY?

I hear so many people BRAGGING about how much money they are getting back in their tax refund and I am STUNNED! I don't think it's anything to brag about! You are essentially putting all of that money in a 0.0% interest savings account.


Now, remember, this is NOT about financial management! If you have money but can't manage it and can't control yourself about spending, then you have a different issue!


But, if you get a HUGE tax refund annually but are working hard and cautious with your cash, then you should consider changing your withholding on your income tax forms (W-4).


PLEASE NOTE! THIS IS NOT TAX ADVICE! I'm not licensed to provide you with tax advice. Consult a CPA for that. This is just me writing and you reading.


You can increase your deductions on your W-4 to reduce the amount of state and federal income tax withheld each check. (and, many don't realize this, but you can claim one number for state and a different for federal).


It is not the easiest thing to calculate, but here is an example...


If you are single, paid bi-weekly (every other week), and are paid a gross salary of $1,350 (so about $35,100) per year, and you claim ONE deduction, your Federal Income Tax withheld is $162.39 per check. Same person who claims 9 withholdings, the amount is $74.69.


So, the person claiming 9 takes home an extra $2,280.20 every year! So, if your numbers are similar to this, and your Federal Tax Refund is over $2,300 every year, you might consider changing your withholdings to 9 (or whatever makes sense) and use that savings to pay down a credit card (or, buy groceries - depending on how bad things are!).

And that's JUST on the Federal side... consider the State side too!

Again, NOT tax advice!

Oh - btw - if you took this money and put it in a simple interest bearing account at 1%, you'd earn over $12 in the year. Now, that is not a lot, but it's better than $0! And stay tuned because I'll be sharing with you about a type of bank account you might want to look into!


And don't go and do something stupid like change your withholding and buy a new car - that's not the point!


Here is the online site to 2012's Federal calculation information. Their description is complicated, but they give you an example and if you can figure it out and come to the same answer, then you know how it works.

It's here: http://www.irs.gov/publications/p15/ar02.html#en_US_2012_publink1000202367
Look for Table 5. Percentage Method-2012 Amount for One Withholding Allowance.

It's maybe 2/3 of the way down.
(can't figure it out? just email me. I'm happy to help)


Another thing that is NOT TAX ADVICE is, don't go over 9 withholdings. Your employer needs to report you if you do and, can you say "audit"?????

Just don't do it. Don't be greedy.