Taxes are withheld from income subject to tax withholding. If you’re an employee working for an employer, a portion of your income will be forwarded to the IRS. This is how you pay your federal income tax. There is no way around tax withholding.
This is due to the federal law requiring taxpayers to pay taxes gradually during the tax year. Instead of making one large payment to the IRS to pay off your income tax, you will basically pay taxes every time you get paid. The taxes withheld from your wages will be proportional to how much you owe in total.
Since everyone’s tax return is quite different, a Form W4 must be filled out by the employee to provide information to the employer. This is for adjusting the taxes withheld from the employee’s income. If a W4 isn’t provided to the employer, more tax than necessary will be withheld.
Under the IRS guidelines, if an employee doesn’t furnish the employer with a Form W4, the employer will withhold tax considering the employee is single and only claim the standard deduction on his or her tax return. Given withholding tax excessively is something you should avoid, make sure to fill out a W4.
Filling Out Form W4 to Adjust Taxes Withheld
Form W4 is used for providing the employer with enough information about the employee’s anticipated tax return. Employees aren’t mandated to file a Form W4 but not filing one will result in more tax being withheld, as mentioned above.
Having all this said, make sure to fill out a Form W4 so that the taxes withheld from your income is not too much than what you owe. Learn more about filing a Form W4 for the 2023 taxes.
Withholding More Tax to Boost Tax Refund
Many employees try to withhold more tax to increase their tax refund. Although this works, it isn’t a great way to boost a tax refund. You won’t be increasing your refund by paying less tax when withholding more tax. What you would do is forward more money to the IRS, only to get it back when you file a tax return.
Any financial advisor would tell you that withholding more tax is going to have a more negative impact on your money than withholding less tax. What we recommend if you want to save money on the side is—open up a savings account.
Instead of letting the government keep the excess tax, put it in your savings account, and earn interest. Sure, the earned interest will be subject to tax but you will get more out of your money. Even if you’re in the highest tax bracket, you will get to keep about $70 out of $100 earned in interest.
The bottom line is increasing the taxes withheld isn’t a great way to boost your tax refund. Click here to learn how to boost tax refund efficiently.