There are all sorts of tips and strategies out there for owing less in taxes, from legitimate (i.e. IRS approved) deductions to more questionable techniques.  As a corollary to owing less in taxes comes the more practical technique of paying less in taxes.  This information is particularly useful for anyone who regularly receives a huge refund each year.

If a big fat refund check sounds like a good thing, remember that the government isn’t giving you free money, they are simply returning the money you paid them in excess of what you owed.   To prevent that from happening again, turn to Form W4, which you file with your employer.  Your W4 tells your employer how to determine the amount of taxes to withhold from each paycheck.

The first item on your W4 is whether you are single or married.  Those sound fairly simple, but a third option, Married, but Withhold at the Higher Single Rate could be throwing your withholding off.  This option is for married people who want to have taxes withheld as if they were single, which is at a higher rate.  You might choose to do this if you normally owe a lot of taxes at the end of the year, but if you are married and getting a large refund, then the Married box is probably the better choice.

Next up comes the number of allowances you are claiming.  The method for determining the right number is described in detail on the instructions that accompany Form W-4.  The bottom line is that choosing too low a number will result in too much being withheld.

The next field is used to specify an additional amount withheld from each paycheck.  Again, this can be used to help people who typically owe money by having more taxes taken out of each paycheck.   If you typically get a large refund, then this number should be reduced or eliminated.

One final way you could be paying too much in taxes is through estimated taxes.  There are specific requirements about who needs to pay estimated taxes which can be found as part of Form 1040-ES from the IRS website.  Estimated taxes are normally paid by taxpayers who owed a large amount the previous year, are self-employed, or have some other form of taxable income outside of their employer.  If you’re paying estimated taxes each year simply out of habit because you had to in  past years,  you should recalculate to see if it’s still necessary.  If your tax return is more than you paid in estimated taxes, then you may be paying them unnecessarily.

The worst case scenario would be to be married, but withhold at the higher single rate, claim too few (or zero) allowances, have additional money withheld from each paycheck, be paying estimated taxes, and then receive a huge income tax refund.  I once found myself in this situation.  After owing taxes one year, I made all of those adjustments even though one or two probably would have been sufficient to avoid owing again.  As a result, I overcompensated and ended up with an enormous return check.  Paying too much in taxes won’t bring the penalties and trouble of paying too little, and you’ll eventually get your money back, but it’s not an efficient way to handle your finances and reduces your take home pay.

For those of you asking “Where’s My Refund?” because you tend to owe more often then receive a refund come tax time, you can apply the suggestions in the opposite order to increase your withholdings and taxes paid.  If you’re asking”Where’s My Refund?” because the IRS owes you one but you haven’t seen it yet, use their online refund location tool.