The IRS issued about 95 million federal income tax refunds by May 12, 2023 (for tax year 2022), averaging $2,812.1 You might consider this type of windfall a stroke of good fortune, but is it really? You probably wouldn’t pay someone $234 each month to receive $2,812 back at the end of a year. But that’s essentially what a tax refund is — the repayment of your interest-free loan to the government.
If you received a large refund on your 2022 return, consider reducing your federal income tax withholding, which would leave you with a bigger paycheck. Taking home more of your pay may let you put that money to better use. For example, you may be able to pay off credit-card debt sooner, build up your emergency savings, or contribute more to a retirement account. If your tax bill was higher than you expected and you had to scramble for the money to pay it, bumping up your withholding might help you avoid a similar situation next April.
In any case, it’s a good idea to check your withholding periodically. This is particularly important when something changes in your life; for example, if you move, get married, divorce, or have a child; you or your spouse change jobs; or your financial situation changes significantly. The IRS has an online tool (the Tax Withholding Estimator) that can help you determine whether — and how much — to adjust your withholding.
Federal Tax Brackets for 2023
The amount of federal income tax withheld from each paycheck is based on the information on your W-4 Form, which may have been filled out a long time ago. If you decide to make an adjustment, you will need to complete a new W-4 and submit it to your employer.
1) Internal Revenue Service, 2023
This information is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2023 Broadridge Financial Solutions, Inc.