Have you wondered why you keep getting big refunds? You are allowing the government to withhold too much of your money! If nothing much has changed in your life and you got a big refund last year, you could be keeping some of that money with every paycheck rather than letting the government borrow your money. Wouldn’t you rather have it earning interest in your bank account than providing no interest loans to the government?

If you answered yes, it is time to change things. The IRS provides a W4 calculator on their web site, http://www.irs.gov. With this calculator you can enter your income and your spouse’s income if you are married, and find out how many W4 allowances you should claim on your W4 form. If you are currently claiming fewer allowances, it is time to go to your employer and request to file a new W4 form.

Won’t it be nice to get an instant pay raise? If you have been using your withholdings as a forced savings plan, you should immediately set up a separate savings account or money market account to deposit the money in that represents the increase in your paycheck. Better yet, have that extra money deposited directly into that new savings account. You won’t miss the money since you never saw it in your paycheck before but now the money is working for you instead of the IRS. Granted, with interest rates at all time lows, you won’t be earning much interest but at least you will have control over that money and not the government.

If you are one of those people with lots of investments or other income sources, you should fill out the W4 worksheet. It will give you a more accurate number for the W4 allowances you should claim. The W4 form is one of the easier forms the IRS requires of us but it can make a big difference in your take home pay. Beware of overestimating your allowances though. If you claim too many allowances, you will end up owing taxes at the end of the year. The IRS does not look upon this kindly. If nothing changed in your job situation or the number of dependents you have, the IRS expects you to know how much should be withheld. You will have to pay penalties if you did not have enough taxes withheld.

I prefer getting a refund to having to pay penalties. The idea is to make that refund fairly small. The IRS does allow unpredictable changes as reasons for not having withheld enough taxes, so you shouldn’t have to pay penalties if something unforeseen changes your income. Your child suddenly being too old to count as a dependent is not unpredictable. It is your responsibility to keep up with changes in the law that may affect your situation. It is your job as a citizen of the United States.

You don’t think so? You should. When is the last time you heard the defense  “I didn’t know that was illegal,” work in court? It doesn’t hold up. As a responsible adult you should make a point of listening to financial news occasionally or reading a magazine when you hear about changes having been made. The news media do a reasonable job of reporting important changes when they happen. If you hear something that may affect you, check into it. Trust me, it is a lot easier to keep up than to extricate yourself from a misstep.

In this case, nothing has changed with the W4 form but if you found yourself with that big tax refund, you may want to change your W4 form.