tax tips — November 20, 2020

Using a Form W-4 to Boost Your Tax Refund (And Why You May Not Want To)

by Susannah McQuitty

Here’s how to grow your refund.

Even if you don’t know much about taxes, you are probably very familiar with getting (or not getting) a tax refund. Sometimes the money you receive in a refund is pretty consistent—and sometimes you may get a couple hundred bucks, and the next year, you get a couple thousand.

So why are some tax refunds bigger than others, and is there any way you can adjust for some consistency? Or, if you have consistency, are there ways to make that number even bigger?

First, let’s do a quick refresher on tax refunds and where they come from.

How do tax refunds work?

In general, every worker in America is taxed on the money they make. If you didn’t pay enough throughout the year, you have to send the remaining money to the IRS to cover the balance; if you paid too much, you get a tax refund.

If you’ve gotten a different refund amount between this year and last, one explanation is that you’ve had some life changes that altered your finances—we won’t get into it here, but you can read more on our Tax Guide about how things like having a child, filing for unemployment, or starting a side business can affect your taxes.

For now, there’s another question on the table: If we know how refunds work, should we make them bigger? Let’s look at how you can boost your tax refund, and why you may decide that a smaller one fits your lifestyle better.

What are the “benefits” of a big tax refund?

Getting a refund is like having a bank account that doesn’t accrue interest (so it doesn’t generate more money for you), and you simply cash it out every year. Ensuring you have a big refund means paying more than your fair share of taxes throughout the year. Filing your taxes is a lot less stressful if you know that your tax liability—plus a little extra—are already signed, sealed and delivered.

Once you file your taxes, any money you overpaid goes back into your pocket, so angling for a big refund is like having an out-of-sight, out-of-mind stash of cash that you can’t misuse during the year.

For some people, however, a bigger refund isn’t worth having less money throughout the year—that’s where breaking even comes in.

Why might breaking even with a smaller refund be better?

The issue that many people have with getting a big refund is that any extra money you’re paying in taxes (a.k.a. what you’ll be getting back in April) is pretty much an interest-free loan to the government.

Why is that a bad thing? Well, it boils down to the fact that money lent without interest is money that’s just been sitting in someone else’s pocket. Instead of working for you, your hard-earned cash is waiting until you get it back in a year—and any money you send the IRS isn’t accessible until you file a tax return for that year, so financial emergencies don’t have much of a fallback.

Breaking even means that just enough is withheld from your pay during the year to cover taxes, and that’s it. No refund, and no money just sitting around until April.

You may still end up having a refund or taxes to pay, so it’s good to be prepared: Throw a few “just in case” bucks into a savings account, and you’ll be good to go. That money you’re not overpaying every paycheck makes a nice little emergency fund, and most importantly, it works for you.

Which is best? The choice is yours.

Whether you pay all your taxes and then some from paycheck to paycheck, or balance what you pay so that you break even, your money habits are yours to choose—just know that if you pay less than your tax liability, the rest will be due by the tax deadline, and paying after the deadline means failure-to-pay fees will be added.

You have some degree of control over how much you pay or don’t pay during the year by using a W-4 to adjust your withholding.

What is my tax withholding, and how do I adjust it?

Employees change their withholding amount by filling out a Form W-4 and turning it in to their employer. If you want a bigger refund, you can list an additional amount to be withheld from your paycheck on Line 6. If you want a bigger paycheck, simply adjust your allowances accordingly.

What if I don’t get a W-2 because I freelance?

Taxes are handled a bit differently if you are self-employed through freelance work, independent contracting or side jobs instead of working for a single employer.

You can read more about it on our post covering taxes for freelancers, but for now, we’ll just say the basics still apply: Make generous quarterly estimated payments to more than cover your taxes, and your refund will go up. If you want more money in your pocket throughout the year, pay only what you estimate owing—just be prepared for the risk of underpaying.

The X Factor: Tax Law

No matter how much you try to control your refund destiny, tax laws are constantly changing, which means there’s always a chance for surprises come refund time. A new tax break may boost your refund, while a change in another tax break could reduce your refund.

Tax laws also have a lot of thresholds, so as your finances change, the tax laws might be applied differently. It’s not quite the wild, wild west, but be aware that dialing a refund up or down is not an exact science.

File with to get all your tax breaks

The last and easiest thing you can do to grow your refund is to file with, because we’ve developed a process to catch all the tax breaks you qualify for. More tax breaks mean a smaller tax liability or a larger refund (depending on how you managed your withholding).

You don’t have to work harder—we do that for you—and for one flat rate of $25! Sign up or log in today to get your taxes done the truly simple way at

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