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Want to Know If Your Tax Refund Will Be Small This Year?

It’s that time of year again, tax refund time! Everyone seems to be busy trying to get their W-2 forms in order, organize all of their receipts and figure out which documents they need to file. But, the most common questions around this time usually revolve around the same issue: Why is my refund so small? How can I make it bigger? Even though we are NOT tax advisers or professionals, here are a few things we have noticed while helping our members over the past years.

Common Question #1: Why is my refund so small?Couple working on Personal Finances

Our Answer: There are no big secrets when it comes to federal withholding. The IRS take factors about your life (household size, income, etc.,) your employer holds money back as an estimate of how much you should pay in income taxes, and then whatever has been withheld is paid to the IRS for covering your annual income tax burden. If more than what you actually need to pay has been withheld, then the IRS will issue it back to you in the form of a refund.

If your tax refund is smaller than you expect, then enough money was not held to cover your tax bill.  If the amount is surprising because it is different from last year's refund, then something major changed about your income. Did you gain extra income?  Did a child move out?  Did you stop paying the interest on your mortgage or student loans? As always if you want a more specific answer, take your tax information a professional tax adviser.  

Common Question #2: So, should I withhold more?

Our Answer: This is a question we hear a lot! It is not a good idea to withhold more money to have a bigger refund because you will receive no interest on that money. It’s one of the worst investments you can make. Consider inflation too, your money will even lose value while the government holds it. 

Common Question #3: How can I get more money back?

Our Answer: Well, you can find more deductions or withhold during the year, but there are many other ways to get way more money and value out of tax season. You can be more profitable in the long term if you consider these other options.

OK, let’s say instead of withholding an extra $100 per month, you invested it in a share certificate, money market or Club Savings account. After a year, you would accumulate $1,200 in principle, just like you would have an extra $1,200 coming from the IRS. But with this option, you can access the money during the year if you are putting the money into a money market or other savings program.  Your money will also be growing and be protected from the effects of inflation.

We can help you explore and learn all about the snowball effect of compound interest, tax deductions and long-term savings, right at your nearest PrimeWay branch. Already a member? Then you know we’re always happy to help, give us a call or stop by when you can! Not a PrimeWay member, well that is OK, check out our website to learn more about what we have to offer our members.