Working on a tax return — or paying someone to do it for you — might be a royal pain. But for three out of four taxpayers, at least there's a reason to smile when the deed is done. Our 1040s turn out to be invoices demanding cash from Uncle Sam. That's why the IRS is in the process of delivering nearly 100 million tax refunds to grateful recipients across the nation. So much money is involved – over $300 billion in all – that some taxpayers apparently could use help figuring out how to spend it.
But let's keep the good news coming. There is no reason to wait until the spring 2014 to get your 2013 refund. You can start getting it in installments starting next payday. The secret is simply preventing the government from taking more out of your paycheck than you actually owe in income taxes! Springtime refunds are nothing more than proof that too much was withheld from your checks in 2012. And, believe it or not, it's surprisingly simple to fix overwithholding.
CALCULATOR: Set Your Withholding Right
All you have to do is file a revised Form W-4 with your employer. The information on that little form determines how much federal income tax is withheld from your checks. The more "allowances" you claim on the W-4, the less income tax will be withheld.
Once you file a Form W-4 claiming extra allowances, your take-home pay should rise on your next payday ... to reflect reduced income-tax withholding. There's a good chance that fixing your withholding will more than offset the hike in Social Security taxes you suffered in January when the payroll tax holiday expired.
Ah, but how do you know how many allowances to claim? Worksheets that come with the W-4 will help, and you can get detailed instructions in IRS Publication 919, How Do I Adjust My Tax Withholding? Or you can struggle through the IRS's online withholding calculator.
The Kiplinger Way
But we've got a better idea. If your 2013 financial situation is likely to be similar to 2012's, take advantage of Kiplinger's Easy-to-Use Tax Withholding Calculator. Answer three simple questions (you'll find the answers on your 2012 tax forms), and we'll estimate how many additional allowances you deserve. We'll even show you how much your take-home pay will rise starting next payday if you claim the allowances on a new W-4.
Our quick-and-easy method is a helpful guide, not gospel. And it's based on the assumption that your financial life hasn't changed dramatically. If you have a new baby, get a new job or have an adult child who qualified as a dependent in 2012 but won't in 2013, for example, the calculator won't reflect how such events will affect your tax bill ... and your tax withholding.
But for most Americans, our calculator will paint a reliable picture. That, in turn, should accomplish two important goals:
1) Get you motivated to grab a W-4 to pinpoint how many extra allowances you should claim; and
2) Get you more of your money as you earn it.
Most people fill out a W-4 when they first take a job and never think about it again. But you can change the number of allowances at any time. You probably should if your 2012 return triggered a refund of $500 or more or if you had to send a check covering more than 10% of your total tax bill when you filed.