If Your Tax Refund Is Higher This Year, Do This Immediately

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You don’t want too much of your income withheld. 

If you haven’t finished filing your taxes this year, worry not. Tax returns aren’t due until April 18, so there’s still plenty of time to get the job done.

However, if you normally get a tax refund, then you may have been motivated to get your taxes done well ahead of that deadline. After all, the sooner your return is filed, the sooner your refund can hit your bank account.

In 2022, the average tax refund came to $3,121. But this year, refunds may be smaller for one big reason — a number of tax credits that got a boost in 2021 reverted to their former (lower) value in 2022.

In 2021, the Child Tax Credit saw its maximum value rise from $2,000 per child to $3,000 for children ages 6 to 17, and $3,600 for those under age 6. The Child and Dependent Care Credit, a separate credit available to parents who pay for childcare so they can work, saw its maximum value increase substantially, too.

But in 2022, these enhancements went away. As a result, a lot of people who file their 2022 taxes this year might see a lower refund amount once they’re done crunching the numbers. If the opposite happens to you, though, and you wind up with a larger refund in 2023 than in 2022, then there’s one key move you may want to make.

It may be time to adjust your withholding

Maybe you earn $60,000 a year, which would mean making $5,000 a month. You’ve probably noticed that your monthly paychecks don’t total $5,000, though. Rather, you get a lower sum of money because your employer has to withhold taxes from your pay. And the amount of tax your employer withholds is based on the information you provide on your W-4 form.

The good thing about W-4s, though, is that you can change your withholding information during the year if it needs an adjustment. And if you’re looking at a higher refund in 2023 than you got in 2022, then it means you may want to set yourself up to collect more of your money upfront for the rest of the year.

To do so, you may want to add more dependents to your W-4 if they’re not listed already. It’s common for workers to not list dependents even if they have children so as to have more tax taken out of their pay and avoid owing the IRS money. But if you have dependents you haven’t been listing on your W-4, it may be time to change that practice.

If you’re not sure how to update your W-4, a good bet is to consult an accountant or tax professional. Your payroll department probably can’t offer you advice on W-4 adjustments — they can simply process those adjustments once you make them.

Don’t let the IRS hang onto your money

Any tax refund you get represents money you were entitled to collect earlier but didn’t. So if you end up with a large refund this year, it may be time to arrange for your paychecks to get larger. Doing so could help you better manage your cash flow during the year, as opposed to letting the IRS hang onto more of your money during the year at no benefit to you.

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