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Color of Money

A Big Refund Isn't Great News

By Michelle Singletary
Sunday, March 6, 2005; Page F01

Many of us have been told all our lives that it is more blessed to give than to receive.

That's true in many cases, but not when it comes to our tax situation. When it comes to paying taxes, it is better not to give the government any more money than you have to. Come tax time, it is better not to receive a refund.

_____Tax Time 2005_____
Numbers Crunch
Singletary: Fix Your Withholding
Find the Best Deductions
Tax Ambushes For the Unwary
Steps Toward A Happier Return
Ways to Reduce A Big Fat Tax
Off-the-Shelf Programs Secure Data
Complete Coverage/Resources

_____Column Archive_____
Bankruptcy Bill Lingers in the Ring (The Washington Post, Mar 3, 2005)
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Read Michelle's Past Columns

If I were in front of an audience and said this, I know some folks would roll their eyes and look at me as if I had lost my mind. People pray for a tax refund.

"When I get my tax refund I'm going to pay off some bills," is a comment I hear frequently.

Others can't wait for a refund to buy something they've coveted all year.

To many, a tax refund is an annual windfall. But a windfall means something that is unexpected, unearned. This, on the other hand, is money you earned all year long. If not much changes in your tax situation, and year after year you are getting a refund, that's akin to lending your money to the government with no interest. Why would you want to do that?

Look, the smarter thing to do is make some changes to your W-4 so that you receive more money in your paycheck during the year.

Do you even remember filling out a Form W-4 (Employee's Withholding Allowance Certificate)? It's a form you completed when you started your job. It's also the form that should be updated far more than most employees do.

As a wage earner, you pay federal income tax by having it withheld from your pay during the year. You can adjust your withholding by filing a new W-4 with your employer at any time.

Of course, if not enough taxes are withheld from your paycheck, or you earn additional money that is not subject to payroll taxation, you may owe taxes at the end of the year. That's not good either. You should strive to have your withholdings match your actual tax obligation.

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