Get Next Year's Refund Starting Next Payday

Get a smaller refund and a bigger paycheck

April 15 is the anniversary of the day Abraham Lincoln died and the anniversary of the day the Titanic sank. It's also the deadline for filing your tax return. But let’s look at the bright side:

• Taxpayers are receiving larger refunds. The average refund check for 2010 was more than $3,000.
• Taxpayers can get their refunds fastest with e-file and direct deposit, quickly getting back what they overpaid through over-withholding.

If you’re one of the nearly 75 percent of Americans who get a tax refund year after year, we can show you how to keep the good times rolling. With a little effort, you can start getting next year’s refund on your next payday.

Sure, we all love our springtime refunds. But doesn't it make more sense to receive your money when you earn it? You can do just that by filing a new Form W-4, Employee's Withholding Allowance Certificate, with your employer to adjust the number of allowances you are claiming. You can claim an allowance for yourself, your spouse and your dependents, for example. Each allowance basically makes $3,650 of your annual income off-limits to withholding. Claiming extra allowances on your W-4 will automatically decrease the amount of taxes withheld from your paycheck, increasing your take-home pay. You'll enjoy instant gratification from a do-it-yourself pay raise.

Avoid costly mind games

You’ve probably heard that when you over-withhold in order to receive a refund, you’re effectively giving the government an interest-free loan. You're better off steering that cash into savings or investments that make money for you. But there's an even bigger issue at play here.

Habitual refunds can play costly games with your mind and short-circuit meaningful tax planning. A huge refund may feel like a heavenly windfall, but what it really means is that you probably overpaid thousands — maybe tens of thousands — of dollars in taxes and simply recouped your own money. This can be painful if it causes you to overlook the tax consequences of your financial choices during the year, such as deciding which stocks to sell, whether to buy a rental property or whether to transform a hobby into a business.

The prospect of getting money back can also lead to laziness when you work on your return. You’d probably work harder to shave down the amount of tax you owe than to pump up an already fat refund.

How much should you have withheld?

In general, getting more money in your paychecks means getting a smaller refund at tax time. If you want more money in your paycheck but are worried about getting hit with a surprise bill at tax time, try the free IRS withholding calculator. Just enter some information from your most recent paycheck and tax return, and it’ll help you estimate how many allowances to claim on your W-4 to get the result you want, whether it's a bigger paycheck or a bigger tax refund.