The 16-day government shutdown circus has claimed another victim . . . well, actually, about 100 million of them: Taxpayers who are looking forward to tax refunds next spring.
The IRS says locking the doors to employees in October will delay the opening of the tax filing season in 2014 by up to two weeks. And, if you can’t file your return, you can’t get your refund.
CALCULATOR: Set Your Withholding Right
But there’s a way to mitigate the damage: Adjust withholding from your paychecks, NOW, to limit the size of your potentially delayed refund. Or, put another way, you have the power to start getting part of next year’s refund in your next paycheck.
So far this year, more than 101 million taxpayers have received tax refunds, averaging more than $2,600. If you are “average” and fix your withholding before November 1, you’ll get an extra $400-plus between now and year-end, and reduce the size of the refund that’s in jeopardy of delay.
All it takes is a few minutes to fill out a W-4 — the little form that controls how much federal income tax is withheld from your paychecks. Most of us fill out a W-4 when we start a job and never give it another thought. But you can revise your form at any time. If you regularly receive a refund, we suggest that you do it before your next payday.
Each year, about 75% of all workers receive tax refunds in the spring, proof positive that too much was withheld from their checks during the previous year. If you’re like most taxpayers, then, you’ve already overpaid your taxes by a couple of thousand dollars. Isn’t that enough generosity toward the folks who just delivered the government shutdown?
Why not file a new W-4 now, cut withholding to its appropriate level . . . and pocket an extra $400 or more by the end of the year? The extra cash could come in mighty handy to fund your holiday generosity toward family and friends. (And if you’re among the majority of Americans who seem infatuated with springtime tax refunds, take heart: Overwithholding up to this point means you likely already have banked a healthy 2014 refund.)
It’s surprisingly simple to fix your withholding. Just ask your company’s payroll office for a W-4 or download one here. The more "allowances" you claim on the form, the less tax will be withheld. Once you give a W-4 claiming extra allowances to your employer (not the IRS), your take-home pay should rise on your next payday.
Ah, but how do you know how many allowances to claim? Worksheets that come with the W-4 will help, and you can get detailed instructions in IRS Publication 919, How Do I Adjust My Tax Withholding? Or you can slog your way through the IRS's online withholding calculator.
The Kiplinger Way
But we've got a better idea. If your 2013 financial situation is likely to be similar to 2012's, take advantage of Kiplinger's Easy-to-Use Tax Withholding Calculator. Answer three simple questions (you'll find the answers on your 2012 tax forms), and we'll estimate how many additional allowances you deserve. We'll even show you how much your take-home pay will rise starting next payday if you claim the allowances on a new W-4.
Our quick-and-easy method is a helpful guide, not gospel. And it's based on the assumption that your financial life hasn't changed dramatically. If you have a new baby, get a new job or have an adult child who qualified as a dependent in 2012 but won't in 2013, for example, the calculator won't reflect how such events will affect your tax bill ... and your tax withholding.
But for most Americans, our calculator will paint a reliable picture. That, in turn, should accomplish two important goals:
1) Get you motivated to grab a W-4 to pinpoint how many extra allowances you should claim; and
2) Get you more of your money as you earn it.