Fiscal Friday: W-4 Withholding Calculator

Are you giving the government an interest-free loan? Whenever you get a tax refund, that money is not just a free gift from the government; you could have been saving that money throughout the year, earning interest for yourself. Do you know what your current withholding number is on your W-4? If you received a large tax refund last year, you need to assess and make a change to that form.

To do this, you will need a copy of your first paycheck of the year so you can fill out the federal taxes withheld. If you plan to itemize deductions on your tax return, you will need to know approximately how much you will deduct in certain areas like charitable contributions and mortgage interest. Once you have all of that information go to this website:

https://apps.irs.gov/app/withholdingcalculator/index.jsp

Once you fill out all the required information for your current situation, it will calculate the amount your refund will be if you keep your current withholding amount. It will recommend what your withholding number should be, in order to get you closest to breaking even without having to pay more federal taxes. This should be done each year, especially if there are any big change (such as a new baby or a change to your income).

To change your withholding number through your employer, you must fill out a new W-4 form. Some companies let you do it online through your employee portal, and others require you to do a paper form. If you have any questions, ask Human Resources.

I know a lot of people like getting big tax refunds. They view it as a bonus they can spend on a vacation, or some other big purchase. However, this money could be working for you all year long if you were keeping it yourself. Use that money to fund your Roth IRA, or put it in a high-yield bank account. This doesn't mean you can't go on that vacation, or make that big purchase; but only if you are able to budget and save for those things. Here's to a financially successful 2016!