We don’t give Uncle Sam interest free loans every year. Most folks have a little extra taken out of their paychecks, just in case. We stopped doing that. It’s not our job to provide a yearly allowance to the government.
When I first started working, it’s how I was told to fill out my W2. It never hurts to be safe by withholding more. This is a myth. If you are giving $20 extra dollars to the IRS to hold for you every month instead of a bank, you’re losing interest.
Most folks, myself included, used this as a savings account. Like a Christmas fund because we would get sticky fingers and the extra, leftover money after bills, starts to burn a hole in our pocket. This way, we couldn’t get a dime till the new year.
The stores have caught on to this and are more than happy to help you spend that nice lump sum that you just received. It’s easy to shop for big ticket items because they’ll let you pledge your tax return money to them. Don’t do this! Keep your money.
This isn’t found money we’re talking about. You had to work for it remember? By letting the government withhold more money than you need to pay, you are essentially loaning them interest free money every year and not only do they love it, they are counting on it.
If you want to loan out your money, do yourself a huge favor and loan it to yourself. Create another savings account and laugh all the way to the bank. It will build up into a nice, fat account before you know it.
Use your money for you.
Emergency funds are a must have because it does exactly what you need it to do. It’s to save you financially when you have a money emergency. It could mean the difference between a new hot water heater right now or everyone stinking till payday because no one wants to bathe in cold water.
There is an unfounded fear that if you don’t set your withholding higher, you’ll have to pay some outrageous amount at the end of the year. While it might be true that you could have to pay, it’s worth investigating what your withholdings should really look like.
The government is more than happy to accept your money in exchange for peace of mind. Don’t feed into this nonsense. That little bit of cash they’re holding for you could be used for stock piling your pantry instead of Uncle Sam’s.
You have tax rights. There is actually something called the Taxpayer Bill of Rights. You can go online or to your local library and find out what the 10 fundamental rights, that we as taxpayers are protected with. The IRS is obligated to explain them all to you, but here they are just so you know:
You Have the Right to:
- Be Informed
- Quality Service
- Pay No More Than the Correct Amount of Tax
- Challenge the IRS’s Position and Be Heard
- Appeal an IRS Decision in an Independent Forum
- Retain Representation
- A Fair and Just Tax System
This list is copied straight from the IRS website. There you can find a fact sheet attached to each Right and it will explain what they’re talking about. But that’s not all you’ll find on there. It’s a huge resource that most folks don’t think to check out.
The best news I can give you is: there is an online tax calculator. You can access an IRS withholding calculator and figure out, on your own, how much you should be taking out for taxes. Knowing this could alleviate a lot of stress for you and adjust your paychecks so that at the end of the year, you’re square with Uncle Sam.
I’m not a tax expert or having any financial training, these are only suggestions for your consideration. You need to do your homework on this and research the information for yourself. You’ll need your most recent pay stub and previous year’s tax return. Check out the online calculator HERE and for additional tax info, go to www.irs.gov