Tax Withholding - Check your W-4

Posted by Data Babble | 9:01 AM | | 0 comments »

I was listening to Dave Ramsey the other day and a 40 something year old female calls in talking about her and her husband's debt and how they are trying to pay it off. The caller basically said they are able to pay down their debt with the tax refund check they get every year, which is about $4500. Dave told the woman they shouldn't be getting that high of a tax refund and they should adjust their W-4 with their employer and have less taxes taken out of each paycheck. You could tell the women had no idea that's how taxes work. I think many people in this country think they just get free money at the end of the year (and this may be the case if you make very little money). People don't realize that your tax refund is just that... a refund of some of the taxes you've paid in. If you have no dependents and basically no write offs, and you're getting a hefty refund each year, you'll want to adjust your W-4 as well.

The IRS used to have a calculator here, but its been down for a while now. If anyone has any good advice on how to accurately calculate this information, I'd be glad to know. Going through all those IRS forms seems a little daunting and error prone to me.

So anyway, it's important to learn at a young age how taxes really work. You pay in and you may get some back in the form of a refund. You don't want to have a large refund because that basically means the government is holding your money interest free (to you, not them) for a year and then giving it back to you. It makes more sense for you to have this money in a high interest savings account so you're making money, not the government right?