Articles > Tax Refund
How your tax withholdings can actually be a loan you cannot afford when receiving your income tax refund
Over Withholding - A Loan You Cannot Afford
by Glen Becker
Suppose your uncle made you this offer: “Every
time you get a paycheck, send me $50 or $100. Then,
next spring, you can spend hours filling out long, complicated
paperwork that proves to me that I owe you money. Mail
them in, and after a few weeks, I will give you back
the money that you loaned me, but not a penny more.
If you keep sending me money after January 1st, you
won’t get any of that back until the year after.”
No way! Why would you want to do that? Why loan money
to your uncle interest-free, while you are paying 18%
to 24% plus interest to banks for your credit cards?
Yet most Americans do exactly that. They loan money
each payday to Uncle Sam, and even though he does not
really want the loan, they insist on lending it anyway.
Most Americans live under the illusion that a big tax
refund is a good thing, that they have somehow gotten
a nice, big bonus from Uncle Sam.
That is false. That tax refund is your money, which
you loaned to the government interest-free. You earned
it, and you have the choice of what to do with it. Even
the IRS recommends that you lower your withholding if
you get a large tax refund. See page 2 of IRS Publication
919 at www.irs.gov/pub/irs-pdf/p919.pdf.
Does it really matter? Why not get that nice refund?
God instead asks you, “What is your motive for
wanting one?” To answer that question, remember
what you did with past refunds. If you are like most
Americans, you used it for an impulse purchase, such
as a big-screen TV, or down payment on a new car. Scripture
says, “The plans of the diligent lead to profit
as surely as haste leads to poverty.” (Prov 27:23,
NIV). Big refunds are generally not planned; they are
the result of a common mistake: if you own a house,
and give even a small percentage of your income to your
church or charity, claiming one exemption per family
member withholds more than necessary. Haste, on the
other hand, is readily evident once the refund check
You can correct this problem immediately. You may fill
out a new W-4 anytime you find that you are having too
much or too little tax withheld. Form W-4 and its instructions
are available at www.irs.gov/pub/irs-pdf/fw4.pdf. Page
2 has worksheets that will help you get the correct
number of exemptions if you itemize your deductions
or have more than one wage earner. Do not be shocked
if the correct number of exemptions seems high. The
IRS does not care how many exemptions you claim on form
W-4 as long as you withhold (or make estimation payments
for) at least 90% of your actual tax. Aim for 100% or
just over, so that when you file your tax return, you
will either receive or pay a small amount.
You will see the results in your paycheck almost immediately.
You can then use your money according to God’s
priorities, and the plans you and He make together.