Getting a Large Refund? Time to Adjust Your Withholding.

If you find that you are getting too large of a refund, or worse, that you are owing too much money on your tax return, you may need to adjust your income tax withholding to reduce your refund (or reduce the amount you owe).

What should you claim if you want to reduce your refund, and what should you claim if you want to reduce the amount you owe at tax time?

Basically, the fewer exemptions you claim, the more taxes are withheld from your paycheck, and vice versa.

So if you need to increase the amount of taxes that are withheld, then you claim fewer exemptions; if you need to reduce the amount of taxes that are withheld, then you increase the number of exemptions you claim.

To change your withholding, you should complete and submit Form W-4 to your employer’s human resource or payroll department.

It’s also important to note that the number of exemptions that you claim on your W-4 may not (and doesn’t have to) be the same as the number of exemptions you claim on your tax return.  So, for example, on your tax return, if you are married and have two kids, your total exemptions claimed will be four (one for you, one for your spouse, and one for each child).  However, your exemptions on your W-4 may not be four.  The reason is that the exemptions on your W-4 are adjusted for things like higher itemized deductions, additional income (from business, investment or rental properties) and other factors.

The IRS has a withholding calculator you can use to determine the correct amount of exemptions to claim on your W-4 at www.irs.gov.

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