Get more of your tax refund throughout the year

It is nice to get a big refund at the end of the tax year.  But, if you think about it, that refund means you were lending the government your money interest-free all year.  If you would like to get at least part of your refund throughout the year, there are two things you can do:

1.  Reduce your withholding.  If you are getting a large tax refund, your employer is taking too much money for taxes from your paycheck each pay period.  To start getting some or all of the extra money now, change your withholding rate.  Ask your employer for a new W-4 form and instructions for changing your allowances.  By having less withheld you will get more of your money during the year.  But rather than spending it each month, put some of that “extra” money into a savings account where it will earn a bit of interest– something Uncle Sam didn’t do for your money previously.

2.  Apply for the Advance Earned Income Tax Credit.  This is an option for lower-income working families with children at home.  Qualified taxpayers could get up to $1,500 in equal amounts in their paychecks throughout the year.  How?  Fill out a W-5 form to get the the Advance Earned Income Tax Credit.  To be eligible for the advanced credit, you must qualify to claim the Earned Income Tax Credit– by having at least one qualifying child and making less than about $33,000 a year. See IRS publication 596 for more information about eligibility for the Earned Income Tax Credit and how to get the credit in advance in your paychecks throughout the year.

CHANGE YOUR SPENDING HABITS TO PLAN FOR A SMALLER REFUND!  If you have developed a spending pattern that counts on a big tax refund to pay off bills or make big purchases, remember that you will now be getting your refund throughout the year.  Adjust your spending to stay current on your bills month by month and save ahead for any big purchases, because now you’ll have more money each month and less at tax refund time.

For more information about changing your withholding or getting the EITC in advance, see the IRS website, visit with a tax volunteer at a VITA or TCE site, or visit with the tax preparer of your choice.

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