How can I adjust tax withholding so that I don't get a large Tax Refund?

I’m a few years out of college now. I’ve filled out my W4 accurately and I still get a tax refund every year of a pretty sizable sum. The thing is, I have student loans and I would much rather have been paying that extra money on a monthly basis (to prevent interest charges) than have given it to the government to ‘hold’ for me.

I’ve spoken to the HR department about lowering my tax deductions and they suggest putting more exemptions on my W4. However this seems off because I would essentially be purposely filling out a form incorrectly. Also, I don’t see anything on this one sheet to take into consideration my student loan interest deduction, which is a large part of where my refund comes from.

How do I pay my taxes correctly throughout the year so that I don’t owe or receive any money when I file?

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6 Responses to “How can I adjust tax withholding so that I don't get a large Tax Refund?”

  1. I edited my W4 over several years, trying to get rid of my refund. It’s a balancing act, just be careful to not owe more than about $1000 each year. They can hit you with a small penalty. It’s never been enough to concern me, but it’s there.

    It’s also a balancing act if you get a raise, a bonus, any kind of differences in pay…

  2. However this seems off because I would essentially be purposely
    filling out a form incorrectly.

    Note that the only part of the W-4 form that is required to be filled out and given to the employer is the small certificate at the bottom that you tear off. In this part, it only asks you for “Total number of allowances you are claiming”. You don’t have to fill out any of the worksheets in the other parts of the form, which actually ask for specific information. Since there are different allowed ways of computing the “Total number of allowances you are claiming”, I doubt that any number you put there can be said to be “incorrect”.

    I think that the best to use the IRS Withholding Calculator. If you use it, the calculator will probably tell you to claim a few more exemptions. And you don’t have to feel bad about “filling the form incorrectly” if you follow the IRS calculator.

  3. On the back of the W4 is a Deductions and Adjustments worksheet. This worksheet will give you an accurate number to enter on line 5 of your W4.

  4. The purpose of the W-4 form is to allow you to adjust the withholding to meet your tax obligations.

    If you have outside non-wage income (money from tutoring) you will have to fill out the W-4 to have extra taxes withheld.

    If you have deductions (kids, mortgages, student loan interest) then you need to adjust the form to have less tax taken out.

    Now if yo go so far that you owe too much in April, then you can get hit with penalties and a requirement to file your taxes quarterly the next year.

    Most years I adjust my W-4 to reflect changes to my situation. The idea is to use it to manage your withholding so that you minimize your refund without triggering the penalties. The HR department has advised you well.

    How to adjust:

    If you want to decrease withholding (making the refund smaller) add one to the number on the worksheet. In 2014 a change by 1 exemption is equal to a salary adjustment of $3,950. If this was spread over 26 paychecks that would be the same as lowering your salary by ~$152. If you are in the 15% tax bracket that increases your take home pay by ~10 a check.

  5. This is a frequent problem for anyone with a large amount of deductions, whether it is student loan interest, home mortgage interest, charitable contributions, or anything else.

    As an employee getting your tax withheld from your check, your options to reduce the amount withheld are limited. The HR department has no control over how much they withhold; the amount is calculated using a standard formula based on the number of exemptions you tell them.

    The number of exemptions you claim on your W-4 form does not have to match reality. If you currently have 1 exemption claimed, ask them what the withholding would be if you claimed 4 exemptions. If that’s not enough, go higher. As long as you are not withholding so little that you have a large tax bill at the end of the year, you are fine.

    Of course, when you do your taxes, you need to have the correct number of exemptions claimed on your 1040, but this number does not need to match your W-4.

  6. The IRS no longer requires that employers submit all W4 forms, but they can request a W4 for an employee at any time, and putting false information on your W4 is still a punishable offense.

    I agree that having a return is like giving the Treasury Department an interest-free loan for the year, but unfortunately paying the appropriate amount of withholding tax is required.

    There is some ambiguous information regarding an employer adjusting the amount of withholding, but it seems to mean that they can withhold more than the estimated rate, but never less than what is calculated using the deductions on your W4.

    See the link for more details: IRS Tax Withholding