Regular readers know that I’m a nag when it comes to withholding. I’m always preaching that it’s better to adjust your payroll withholding so that at tax time you don’t have to pay the Internal Revenue Service too much or get back a huge refund.
Now I have IRS Commissioner John Koskinen in my withholding corner.
2 credits will delay refunds
This year there’s an added reason to re-evaluate your paycheck withholding ASAP.
When you file your 2016 return in 2017, your refund could be delayed until mid-February if you claim the Earned Income Tax Credit, or EITC, or the additional child tax credit.
As I noted back in June, the tax refund delay is part of the Protecting Americans from Tax Hikes Act of 2015, or PATH Act. This law extended, and even made permanent, many popular tax breaks.
But in putting together the PATH Act, Congress also included a provision it hopes will slow down tax refund fraud.
Refundable tax credit concerns
The EITC and additional child tax credit are refundable tax credits. A credit is used to offset any tax you owe.
With a refundable credit, not only will the amount erase any tax bill you owe: If the credit is more than that, you get the excess money back as a refund.
The thinking is that by forcing the IRS to hold refunds from returns where one or both of these refundable credits are claimed, the agency will have extra time to double check the filings and make sure the refunds are legitimate and accurate.
But it also will mean that some folks who intentionally over-withhold so that they will get a big tax refund will be waiting a bit longer in 2017 for that forced savings amount.
They can avoid that wait by adjusting their withholding now to start getting the overpaid taxes back in their remaining 2016 paychecks.
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Money now, no refund waiting
“With these changes, it makes good sense on many different levels to check on your withholding and plan ahead for next tax season,” says Koskinen. “It’s a personal choice if you want to have extra money withheld to get a bigger tax refund, but you have options available if you prefer to have a smaller refund next year and more take-home money now.”
Those options include heading to your payroll office to tweak your withholding. It’s not hard to do. You simply fill out a new W-4.
And if you’re worried that if after you change your withholding amount you’ll just spend those extra paycheck dollars, consider having the amount directly deposited into a savings account. Bankrate can help you find the best rates.
Even today’s minuscule bank savings rates are better than the 0% return you get when you let Uncle Sam hold your money until you get it back as a refund. And you can get your money any time, rather than waiting added weeks for a tax refund.
Keep up with IRS and tax news, as well as find filing tips, calculators and more at Bankrate’s Tax Center.
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