To Get an “Early” Refund, Adjust Your Withholding

You may want to adjust your withholding if you received a large refund this year. Each year, millions of taxpayers claim an income tax refund. To be sure, receiving a payment from the IRS for a few thousand dollars can be a pleasant influx of cash. But it means you were essentially giving the government an interest-free loan for close to a year, which isn’t the best use of your money.

Fortunately, there’s a way to begin collecting your 2024 refund now: You can review the amounts you’re having withheld – and any estimated tax payments you’re making – and adjust them to keep more money in your pocket during the year.

Choosing to Adjust

It’s crucial to check your withholding and/or estimated tax payments if you have:

• I received a substantial 2023 refund,
• Gotten married, divorced, or added a dependent,
• Bought a home, or
• Started or lost a job.

Withholding or estimated tax payment changes might also be warranted if your investment income has changed significantly.

Making a Change

You can modify your withholding at any time during the year or even more than once a year. To do so, submit a new Form W-4 to your employer. Changes typically will go into effect several weeks after the new Form W-4 is submitted. For estimated tax payments, you can adjust each time quarterly payments are due.

While reducing your withholding or estimated tax payments will put more money in your pocket now, you must also be careful not to reduce them too much. If you don’t pay enough tax throughout the year on a timely basis, you could owe interest and penalties when you file your return, even if you pay your outstanding tax liability by the deadline in April 2025.

Getting Help

One reason to consider adjusting your withholding is the passage of new tax legislation. For example, several years ago, when the Tax Cuts and Jobs Act was enacted, the IRS needed to revise withholding tables to account for the increased standard deductions, suspension of personal exemptions, and changes in tax rates and brackets. If you’d like help determining your withholding or estimated tax payments for the rest of the year, please get in touch with the office.