Getting the highest refund possible is generally top priority on nearly every taxpayer's list. Although various factors, such as your filing status, number of allowances you claim and which tax credits you qualify for, can all impact your refund, you can do a few things to help tip the scales in your favor. While receiving a large refund is great at tax time, keep in mind that it's not free money. The IRS is just returning your own money, and large refunds often mean you likely have been overpaying on your taxes all year.
Adjusting Your W-4
Arguably one of the easiest ways to get the highest refund from your tax return is to make adjustments to your W-4. When you start a new job, your employer will have you fill out a W-4 form which details how much taxes to withhold from your paycheck each pay period. You can adjust your withholding at anytime and submit a new W-4 to your employer whenever your life situation changes, such as having a child or changing your marital status, that could affect your filing status and number of allowances.
The earlier you make necessary changes to your W-4, the more impact these changes will have on your tax year. The less withholdings you claim, the more likely you are to receive a larger refund, but be prepared to take home less money with each paycheck. This is because your employer will hold more of your pay for taxes based on the number of withholdings you claim. As a taxpayer, you are allowed one allowance for yourself, one allowance for your spouse and one for each qualifying dependent.
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You can take as many or as few of these allowances as you're eligible to claim. For instance, perhaps you can claim five allowances: one for yourself, your spouse and one for each of your three children — but you're required to claim all five. In fact, claiming five allowances could mean you're not having enough taxes withheld every pay period, and could land you a hefty bill from Uncle Sam come tax time. The more allowances you claim, the less your employer will withhold from your paycheck to cover your tax obligation. If you're unsure how many allowances to claim and how this affects your taxes, use the withholding calculator on the IRS website to guide you.
Claiming Tax Credits
Certain tax credits, such as the Earned Income Tax Credit and the Additional Child Tax Credit, are fully or partially refundable. This means that whatever portion of the refund beyond that needed to bring your tax obligation to zero is refundable to you. Your eligibility for tax credits varies depending upon your filing status, income level and other factors. Because the requirements for claiming vary, be sure to check out the IRS' website for an interactive tax assistant tool that can help you determine your tax credit eligibility. It is also a good idea to consult with a qualified tax professional to discuss all the options available to help you land the highest refund possible.