{"id":972,"date":"2020-12-26T17:00:15","date_gmt":"2020-12-26T22:00:15","guid":{"rendered":"http:\/\/10.130.206.81\/?p=972"},"modified":"2020-12-31T08:39:40","modified_gmt":"2020-12-31T13:39:40","slug":"yourtaxrefund","status":"publish","type":"post","link":"http:\/\/10.130.206.81\/2020\/12\/26\/yourtaxrefund\/","title":{"rendered":"Make the Most of Your Tax Refund!"},"content":{"rendered":"

Retailers across the country expect big sales for the first quarter of the year. They know this is the time of year when 75% of Americans get a big check in the mail courtesy of Uncle Sam. Nobody likes filing their taxes, but everyone likes getting a refund. It\u2019s free money, right? Whoa \u2026 hold that thought for a moment. Before you celebrate your sudden windfall with a new big-screen TV, think about how your refund gets there. It might not really be the free money you think it is.<\/p>\n

How the refund process works …<\/strong><\/p>\n

When you were hired at your job, you had to fill out a boatload of paperwork, including a W-4. In the W-4, you told your employer how you wanted your income taxes deducted from your paycheck. It\u2019s a pretty simple form. You check a box if you\u2019re married and fill in the number of kids you have. That gives your payroll office an idea of your tax rate.<\/p>\n

Every paycheck, they take a percentage of your gross pay and send it to the IRS. That\u2019s called your \u201cwithholding.\u201d If you\u2019re withholding the right amount, the IRS should get as much money as it\u2019s due. The problem is, the withholding formula is designed to protect people from having to cough up money in April. For millions of Americans who live paycheck to paycheck, this would be a significant hardship. So, the withholding formula errs on the side of over-withholding.<\/p>\n

When you complete your tax return, you\u2019ll be much more aggressive in figuring your deductions and credits. You\u2019ll also wind up with an income that\u2019s a little lower than what your employer was estimating. That means you get a refund. The government pays back some of the money it withheld from your paycheck.<\/p>\n

The reason you might want to get mad about this practice is that you\u2019ve basically given the government an interest-free loan. Your refund actually represents a loss. If that amount had been sitting in a savings account earning interest, you\u2019d actually have more money to spend!<\/p>\n

Why is your salary different on your tax return?<\/strong><\/p>\n

There are a number of legitimate reasons why your tax bill may be different than your employer was estimating. If you qualify for a number of tax credits like the Earned Income Tax Credit or the Child and Dependent Care Credit, those numbers aren\u2019t reflected in your paycheck. Trying to estimate them in your W-4 can be a hassle, especially if your income changes over the course of the year. You might suddenly find your tax credit isn\u2019t worth as much as you thought it was!<\/p>\n

You might also have received a promotion or a raise this year. The withholding rate assumes you\u2019ve been making that same salary all year, so a bump in salary means a bump in withholding. This is also difficult to plan for, and changing your W-4 mid-year, only to change it back the next April, probably isn\u2019t worth it.<\/p>\n

If this was just a regular year and you\u2019re getting $2,000-3,000 back, you\u2019re just over-withholding. To figure out how much you\u2019re over-withholding, take your refund and divide it by the number of paychecks you get in a year (26 if you\u2019re paid bi-weekly, 12 if you\u2019re paid monthly). The mean tax refund was $2,800, which means the average American is over-withholding by $233 each month!<\/p>\n

What to do instead<\/strong><\/p>\n

You can fill out a new W-4 at any time. The IRS has a W-4 Calculator to view different scenarios to help you determine if you need to adjust your withholding for making sure you\u2019re not overpaying your taxes. It\u2019s unlikely you\u2019ll nail your tax burden exactly, and it\u2019s better to overestimate than underestimate your tax payments. Still, fixing your withholding could result in another $200 in your pocket every month!<\/p>\n

If that $200 would just slip through your fingers, you may be better off letting the IRS hold on to it for you. However, if you have a plan for that money, and stick to it, the hassle of the paperwork may be worthwhile. Here are a few ways to put that money to work.<\/p>\n

    \n
  1. Use it to pay down your high-interest debt. If you\u2019ve got a credit card balance racking up 20% interest, paying it off is like getting a no-risk 20% return on an investment. You can\u2019t beat that! The same is true of student loan debt or other obligations.<\/li>\n
  2. Start an emergency fund. The root cause of most debt is an unexpected expense on a tight budget. Being able to use cash to cover car repairs, medical expenses or an unexpected short paycheck can keep money off the credit card and in your pocket.<\/li>\n
  3. Put it in a retirement fund. Increase your contribution to your 401(k) program or IRA. You can reduce your tax burden even further and raise your quality of life down the road.<\/li>\n
  4. Use the extra budget space to start a money-making side project. With a few power tools, a bucket of paint and an imagination, you could turn curbside furniture into treasures!<\/li>\n<\/ol>\n

    Whatever you do with your money, you can rest assured you don\u2019t have to wait until April to get it. There\u2019s no paperwork to fill out before you get your own money each month and you don\u2019t need to store up a wad of receipts and pictures to get it. It\u2019s your money, and now it\u2019s working for you.<\/p>\n<\/div>

    <\/div><\/div><\/div><\/div><\/div>\n","protected":false},"excerpt":{"rendered":"

    Retailers across the country expect big sales for the first quarter of the year. They know this is the time of year when 75% of Americans get a big check in the mail courtesy of Uncle Sam.<\/p>\n","protected":false},"author":1,"featured_media":5004,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[52],"tags":[33,14],"class_list":["post-972","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-taxes","tag-tax-return","tag-taxes"],"yoast_head":"\nMake the Most of Your Tax Refund! - Widget Financial<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"http:\/\/10.130.206.81\/2020\/12\/26\/yourtaxrefund\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Make the Most of Your Tax Refund! - Widget Financial\" \/>\n<meta property=\"og:description\" content=\"Retailers across the country expect big sales for the first quarter of the year. 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