Are You Withholding More Than Required?

Posted on May 21, 2023

Are You Withholding More Than Required?

If you are withholding more taxes than required and receiving large refunds because you are paying too many taxes over the year, it may be time to review your withholdings. Even though receiving a refund is pleasant and is often seen as savings by individual taxpayers, overpaying every time you file means that your money is being unnecessarily processed.

In cases where there is a tax debt, it is in your best interest to withhold only as much tax as is necessary from your paycheck. If you overpay in taxes over the year, but have an outstanding tax liability, the IRS will not issue you a refund for the taxes you overpaid throughout the year. They will take the refund amount and use it to fully or partially satisfy your tax debt.

On the other hand, if you pay estimated taxes or are unsure of how much you are required to withhold, then you should file in excess to ensure that there is no underpayment of taxes. It is better to overpay than to underpay because in the latter case, underpayment of taxes will result in tax debt on which the IRS charges penalty and interest.

Reviewing your tax requirements and your tax filing status, deductions, and credits will help you to alter your tax filing details so that you can save on taxes. For example, if using married filing separately provides you more tax benefits during a tax year, then you should reconsider altering your filing status for that particular year.

If your income level or sources of income change drastically during a tax year, then you must review your tax filing details and make the necessary changes to minimize your tax bill.

 

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