A number of factors influence how much you will get back when you file your taxes. These factors include the number of exemptions you claimed when you started your job, how much additional income you receive and the number of credits and exemptions for which you are eligible. You do not have to wait until tax time to see how much you can expect to get back. You can estimate your refund any time by using the information you have available, with or without your W-2.
When you started your job, your employer gave you a stack of papers to fill out. One of those papers was the W-4 form, which listed the number of exemptions you wanted to claim for tax purposes. The more exemptions you claimed on this form, the less your employer withholds from your paycheck. If you claimed no exemptions, your employer withholds more from your paycheck for taxes, meaning that your refund should be larger when you file your 1040 form. You can adjust your withholding at any time by asking your human resources department for a new W-4 form.
Special tax breaks like the earned income tax credit and the retirement savings tax credit can boost the size of your refund. The earned income tax credit is a refundable credit, meaning that you get it even if your tax liability is zero. If you are eligible for this popular credit, it can significantly boost the size of your refund. If you have someone else prepare your taxes ask him to check your eligibility for the credit. If you do your taxes on your own, the tax software you use can help you determine your eligibility.
If you have additional sources of income over and above the wages on your W-2, that other income can reduce the size of your refund. The IRS counts many different sources of income, including money from interest, dividends and capital gains. If you have any of these income sources, you must report them to the IRS when you file your taxes. Banks and brokerage firms do not typically withhold taxes from their payments, so this extra untaxed income increases your tax liability and decreases your refund.
You do not have to wait until you file your taxes to get an estimate of your refund. You can start your tax planning early by using your pay stubs and any one of a number of tax preparation programs. If your wages remain the same from week to week, you can get your annual income simply by multiplying the gross pay on your latest pay stub by the number of pay periods throughout the year. Then add in any other income you expect to receive from other sources and run the numbers through the program. You can instantly see your estimated refund, long before you file your taxes. If your advance planning shows a big refund, you might want to adjust the withholding on your W-4 form and get more money in your paycheck instead.
- A young woman holding a pen, doing her taxes image by Christopher Meder from Fotolia.com