- If every year you are “paying things off” with your tax refund then you need to ask yourself this question: ‘Did I accumulate this debt in the last 12 months?’ For years I would think I was being responsible by paying off all my credit cards when taxes came in, not realizing that these are expenses that I wasn’t budgeting for. If so, realign your budget so you don’t have to use the cards at all.
- Think about why you got the large refund. If you got the large refund because you received EIC, or earned income credit, which means you received money based on your adjusted gross income with kids, you need to put most of the money in a savings account. (Somewhere you can’t get too easily) use this savings for emergencies. Like car repairs or medical.
- Does your W-4 need to be adjusted? You shouldn’t let the government be your savings account. If you get a big return each year, and you don’t get EIC, then you’re using the government as you’re saving account. Why not adjust your W-4 at your work to reflect your status and use your money throughout the year? Rule of thumb: claim one person less on your W-4 than you actually have, this way you will get money back but not a huge amount.
So take a look at your taxes to see if you need to adjust your W-4.