If you received a large refund this year, you may want to adjust your withholding.
Each year, millions of taxpayers claim an income tax refund. 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 is not the best use of your money.
Fortunately, there is a way to begin collecting your 2024 refund now: You can review the amounts 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 particularly important to check your withholding and/or estimated tax payments if you have:
- Received an especially large 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, and more than once a year.
To do so, simply 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 also need to be careful that you don’t reduce them too much. If you don’t pay enough tax throughout the year on a timely basis, you could end up owing 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 thing to consider when adjusting your withholding is the passage of any 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.
This column is for information only and is not intended as advice. Consider getting the help of a tax professional to determine your optimum withholding or tax payments.
Norm Grill, CPA, (N.Grill@GRILL1.com) is managing partner of Grill & Partners, LLC (www.GRILL1.com), certified public accountants and consultants to closely held companies and high-net-worth individuals, with offices in Fairfield and Darien, 203 254-3880.
