Losing your tax refunds to the IRS every year but need the money? Consider these changes.
If you owe the IRS and have a refund on your tax return, the IRS will keep the refund and apply it to your unpaid taxes. The problem is not repaying the debt – you would if you could – but that you simply cannot afford to lose the refund. The refund is needed to pay bills, repair a car, or see the doctor.
The solution to any lost refund issue: Review your withholding to eliminate the IRS refund and put the cash in pocket for necessary expenses.
If you are losing your refunds to the IRS, change your withholding. Take your refund, divide it by the number of your paychecks, and tell your employer to lower your withholding by that amount each pay period. You can also change the number of exemptions you are claiming, although I prefer making a specific dollar change. You will probably need to complete a new W-4 for the change.
If you are married, file jointly and only your spouse owes the IRS, it is important to attach an Injured Spouse Allocation (Form 8379) to your return.
You are being injured by the IRS taking your refund and applying it to your spouse’s tax liability. You can still file jointly – there are benefits to you over filing separately – but use the injured spouse allocation – it permits the IRS to calculate how much of the refund was generated by you, and pay it to you, rather than apply it to a debt that is not yours.
Most tax refunds are generated from too much withholding. In essence, this means you are making a loan to the IRS of your money by overpaying the current year’s taxes. While for some this is a good way to accelerate paying the IRS back, if it is more than your budget can take, change your withholding or file a injured spouse claim.