Workers who don’t claim the correct number of tax allowances cause a twofold hit against their savings efforts when they receive a gigantic tax refund.
EL SEGUNDO, CA (PRWEB) March 08, 2013
The average tax refund returned to taxpayers was a whopping $2,913, according to report from CNN Money. GoBankingRates expert tax columnist, Elle Martinez, investigates the effects of claiming too few tax allowances on a W-4 and uncovers that claiming the wrong number causes workers to overpay the amount of federal taxes they owe by thousands of dollars during the year. Essentially, workers are giving an interest-free loan to Uncle Sam for a one-year period, since they are providing the government with their money to use however it sees fit for a one-year period.
A W-4 form is an IRS-issued document that employers use to withhold the correct amount of federal income tax from their workers’ paychecks. Standard new hire documents almost always include a W-4 tax form.
GoBankingRates explains claiming the wrong number of tax allowances, or failing to update a W-4 following changes in the household, causes employers to withhold too much money from employees' paychecks. While this results in a bigger tax refund in April, it also means taxpayers lose access to a portion of their income that could be allocated toward savings throughout the year.
“Workers who don’t claim the correct number of tax allowances cause a twofold hit against their savings efforts when they receive a gigantic tax refund,” explains GoBankingRates editor, Jennifer Calonia.
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GoBankingRates.com is a national website dedicated to connecting readers with the best interest rates on financial services nationwide, as well as informative personal finance content, news and tools. GoBankingRates collects interest rate information from more than 4,000 U.S. banks and credit unions, making it the only online rates aggregator with the ability to provide the most comprehensive and authentic local interest rate information.
Jaime Catmull, Director of Public Relations
Source: CNN Money, Average tax refund slips to $2,913 in 2011.