hundred-dollar bills lying on the refund section of a tax form

Each year about 80% of American tax filers receive a refund. While getting a refund seems like a reason to celebrate tax time — you can pay bills or save for a rainy day — you could be celebrating every pay period. Instead of giving the government an interest-free loan, you could keep more money in your wallet with these tips.

How the refund process works

Every paycheck, your employer takes a percentage of your gross pay — your withholdings — and sends it to the IRS. If you're withholding the right amount, as determined on your Form W-4, the IRS should only receive the required amount it's due every pay cycle. If you claim too few allowances on your W-4, this will result in over-withholding. When this happens, you have essentially given the IRS an interest-free loan until you get a tax refund. 

If the amount of over-withholding had instead been deposited in a Money Market Share Account earning dividends, you may actually have had more money to spend at tax time! You may prefer to have less tax withheld up front and receive more in your paychecks.

What to do instead of overpaying

Instead of continuing to overpay your taxes, talk to your Human Resources department about filling out a new W-4. You can complete a new W-4 at any time. If you plan to make changes to your withholding, the IRS’ Withholding Calculator gives you the information you need to fill out a new W-4. It can help you determine if you need to adjust your withholding to make sure you're not overpaying (or worse, underpaying) your taxes.

The advice provided is for informational purposes only. Contact a tax advisor for additional guidance. 

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