Nice, Big Refund, Now?
Don’t get too excited. Remember, a big refund now means that Uncle Sam’s been taking more money out of your paycheck all year, which you’re just now getting back. That’s money you’ll probably want throughout the year, so if you don’t see any major changes any time soon, update your W-4 form to decrease your deductions.
Conversely, if you paid a penalty for short-changing the IRS, you’re probably looking for a way to make sure it doesn’t happen again. It’s much easier to have more taken out of your paycheck throughout the year than to make up the difference plus a penalty in April, so ask your employer to withhold a bit more from each payment.
The IRS actually has a very helpful online calculator to help you figure out the best amount to withhold. Just go to IRS.gov with your most recent tax return and paystubs, and type “withholding calculator” in the search box. Use their withholding calculator to help you get a better handle on what deduction amount will get you to a better year-end result. This site will even allow you to complete a new W-4 online that you can print out and provide to your employer.