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I received a large refund on my tax return this year. Should I adjust my withholding?

You must have been pleasantly surprised to find out you’d be getting a refund from the IRS — especially if it was a large sum. And while you may have considered this type of windfall a stroke of good fortune, is it really?

The IRS issued over 112 million federal income tax refunds, averaging $2,895, for tax year 2016.1 You probably wouldn’t pay someone $240 each month in order to receive $2,900 back, without interest, at the end of a year. But that’s essentially what a tax refund is — a short-term loan to the government.

Because you received a large refund on your tax return this year, you may want to reevaluate your federal income tax withholding. That way you could end up taking home more of your pay and putting it to good use.

When determining the correct withholding amount, your objective is to have just enough withheld to prevent you from having to owe a large amount of money or scramble for cash at tax time next year, or from owing a penalty for having too little withheld.

It’s generally a good idea to check your withholding periodically. This is particularly important when something changes in your life; for example, if you get married, divorced, or have a child; you or your spouse change jobs; or your financial situation changes significantly.

Furthermore, the implementation of the new tax law at the beginning of 2018 means your withholding could be off more than it might be in a typical year. Employers withhold taxes from paychecks based on W-4 information and IRS withholding tables. The IRS released 2018 calculation tables reflecting the new rates and rules earlier this year. Even so, the old W-4 and worksheet you previously gave to your employer reflect deductions and credits that have changed or been eliminated under the new tax law.

The IRS has revised a useful online withholding calculator that can help you determine the appropriate amount of withholding. You still need to complete and submit a new W-4 to your employer to make any adjustments. Visit irs.gov for more information.

1Internal Revenue Service, 2018

IMPORTANT DISCLOSURES

ERB FINANCIAL is an independent contractor who offers Investment Advisory Services & Securities through Excel Securities & Assoc., Inc. member FINRA, SIPC, 200 Canal View Blvd., Rochester NY 14623, 585-424-1234.

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

This communication is strictly intended for individuals residing in the state(s) of NY. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018.

Filed Under: Articles, Tax Topics

Call: (585) 426-8190

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Copyright 2019 - ERB FINANCIAL is an independent contractor who offers securities and advisory services through Excel Securities & Associates, Inc., 200 Canal Park Blvd, Rochester, NY 14623, 585-424-1234 • Excel Securities & Associates, Inc. and Erb Financial are separate entities; There is no common ownership between the two. Excel Securities & Associates, Inc. is a Member of [FINRA] and [SIPC]
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