A large tax refund should be a reminder to all taxpayers that they gave the IRS a big loan during the year. Let me explain with an example below.
Large Tax Refund Example
If you claim too few exemptions when you completed your W-4 form and have been receiving a bi-weekly paycheck of $2,000 when you could be receiving $2,100 then you have given the IRS $100 every two weeks or $2,400 during the year. Yes, the IRS returns the $2,400 in the form of a tax refund but think about how much you lost in interest during the year by having too much money taken out of your paycheck. You could have been paying down your credit card debt, allocating funds to your 401K, or saving up for your child’s tuition & more.
Be Proactive For Next Year – Update Your W4 Form
Don’t repeat the same mistake next year. Contact your employer’s payroll office and update your W4 form. More specifically, review your tax exemptions. But, also make sure you don’t claim too many tax exemptions as you will owe money back to the IRS at the end of the year which isn’t fun either.
Getting My Tax Refund Quicker
If you are already going to be getting a tax refund and are very worried about when you will receive it; your best option is to file taxes electronically (e-file). Generally speaking, you will receive your tax refund in about half the time as traditional paper filing or as fast as 3 weeks after filing your return. With e-file there are no delays with mail as all of your tax information is sent electronically. But, note that certain state tax refunds may take longer as several states are currently facing budget issues.
Please note that you cannot file electronically if you are claiming the homebuyer tax credit as there is paper documentation requirements for this credit.