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You’ve probably heard the news: Everyone is freaking out over their smaller-than-expected tax refunds this year -- the average refund is down 8.7 percent over last year. And some people aren’t even getting refunds at all: They’re getting hefty bills, instead.
But here's the thing: Smaller tax refunds are actually a good thing. A big refund means your employer withheld way too much of your money in income taxes from your paychecks in 2018.
Your paychecks could have been larger all year long. You could have put that money toward paying down high-interest credit card debt, or reducing your student loans. You could have even put a little bit extra in your 401(k) or Roth IRA.
But instead, you gave the federal government an interest-free loan. And I'll bet they didn't even thank you for it.
Here's the good news, though: Even if you blew it last year, there’s plenty of time left to get on the right track for 2019. Here’s what you need to know to get your money right -- and start seeing bigger paychecks.
The IRS can give you a quick (free!) tax checkup for 2019
You don't need to hire an accountant like The Office's Kevin Malone to get your taxes straight for 2019 and beyond.
The Internal Revenue Service has a great tool available on its website where, after answering a few questions about your taxes and job, you can work out your tax bill for 2019. It’s called the IRS Withholding Calculator, and it’s been recently updated to account for changes due to the Tax Cuts and Jobs Act of 2017.
You’ll want to have a recent pay stub handy so you can answer questions about how much you’re currently being paid, how much you put in your 401(k), and how much in tax is being withheld from each check. If you expect to file jointly or have a second job, you’ll need that extra pay stub as well.
You’ll also be asked questions about major tax credits you expect to claim (such as the Earned Income Tax Credit), and any other sources of income you may have (such as bank interest). A completed copy of your 2018 federal income taxes will come in real handy here.
The IRS calculator will then tell you whether you’re overpaying or underpaying your taxes with every paycheck. It’ll also tell you the number of allowances you should claim for the rest of the year to get closest to paying your true tax bill.
Free tax software can give you a check-up too
If you’re using tax filing software such as Turbotax, getting your tax situation straight for 2019 is beyond easy. Turbotax will automatically review your withholding for 2018 and let you know if you’ve blown it. And best yet, Turbotax will print you off a new W-4 form you can file with your employer to get your taxes straight for 2019.
Not ready to file your taxes yet? You can also use this handy W-4 Withholding Calculator tool at the Turbotax website to see how adding or subtracting withholding allowances will affect your tax refund next year. H&R Block has a similar tool.
Here’s how to increase your next paycheck
If you're not using Turbotax or other tax preparation software, it's still easy to update your W-4. You can download and print a W-4 (PDF file) from the IRS website here.
After filling out your name, address and social security number, you’ll write the number of allowances the IRS Withholding Calculator told you to take on Line 5. If you’re worried this might not be enough, you can use Line 6 to withhold additional money for taxes in any dollar amount you choose.
The sooner you do it, the sooner you’ll see a bigger paycheck. Just be sure to use that extra cash for something smart!