The Simple Step That Gets Me A Tax Refund Every Single Year

I’ve said it before and I’ll say it again: even though I manage to get a tax refund, I hate preparing my tax return. Hate it, hate it, hate it. I think I’ve been jaded ever since I worked at my old CPA firm, where I’d have to slave away for 10-12 hours a day staring at tax return after tax return after tax return…yeah, it’s just as unglamorous as it sounds. And they didn’t even concede and let us wear our pajamas to work, or give us the 6 PM beer cart we requested on those long days. How rude.

On top of that, my personal return used to be SO EASY — I’d have a W-2, a little interest income, and I could prepare it for free and within about 15 minutes using the software my firm had. Fast forward to present day, and now I have to use Turbo Tax like the rest of America and deal with rental income, which also makes my return so complicated that I have to pay more to file it. Ugh.

Now that I’ve vented about how much I dread logging into Turbo Tax every year, here’s the good part: I’ve always gotten a tax refund. Every. Single. Year. Do you know how wonderful that is? I love the feeling of seeing the government deposit money straight into my account every spring — it’s like I’ve gotten richer in one day by doing absolutely nothing. All of a sudden, I’m able to afford that plane ticket to visit a friend in Denver, or buy that new mattress I’ve been needing, or usually in my case, as I am boring as hell when it comes to money, padding my retirement or savings account. Either way, it’s a nice little gift from Uncle Sam, and one I wish for you as well.

So how do I do it? Very easily: I don’t claim any exemptions on my W-4.

Now, let me first explain what exactly a W-4 is. This is a federal form you normally fill out when you start a new job, where you state how many exemptions you will be claiming on your tax return. Remember, the IRS offers you these exemptions as “free money” each year. For 2016, the exemption amount is $4,050, so if you and your significant other file jointly and have no children, you will have $8,100 deducted straight from your income just for being alive. Add a child in the mix, and you’ve upped it to $12,150. These exemptions lower the overall tax amount you have to pay on your return, which is a big win for you, me, your crazy cousin Albert, and the rest of the USA come tax-filing time. I know — feel free to do a happy dance about it.

Now, when you state your personal exemptions on your W-4, you are basically giving the government a better estimate of how much tax you will truly owe when you get around to preparing your tax return at the end of the year. Your payroll department will factor this into how much income tax is taken out of your paycheck: the higher the number of exemptions you claim, the lower the amount of taxes that are taken out of each paycheck. This all makes sense when you think about it: if the government knows you’ll be claiming an almost $12,000 deduction on your return for your three-person family anyway, why would they waste time taking out taxes for it?

Now, giving the IRS the best estimate of these exemptions is what you’re supposed to do, but sometimes we all just want to rebel a little, right? Thus, I claim zero exemptions on both my federal (W-4) and state (WH-4 for Indiana) exemption form. Why? Because I would rather have a tax refund coming my way each spring than have to potentially pay more to all those beautiful (cough, cough) politicians on Capitol Hill. Yes, I’m tricking the government into believing I will be claiming none of that free $4,050 they offered to throw my way so that they will take more taxes out throughout the year. That way, I’ll have paid in more than I owe, resulting in a nice chunk of change refunded to yours truly just as the weather starts to turn around. It’s always a bright spot on those otherwise cold and gloomy late winter days.

Now, many people think it’s a ridiculous concept to essentially give more of your money to the government initially (through the larger tax payments within my paycheck). Why have less money come to you each month and get it on the back end?  Why not get the money upfront through your paycheck, and settle up the difference at the end of the year on your return? I’ll tell you why: Because I’d spend it.

You see, if my paycheck increased the maybe $100 each month that it would if I claimed the proper exemptions, I would assume each month that I had more disposable income, meaning that I’d most likely buy more clothes, eat out at more restaurants, and go to more concerts/movies/comedy shows. Would I siphon that extra cash into savings? Probably not. And if I, the queen of saving (seriously, it’s an addiction), wouldn’t do it, I highly doubt that you or the majority of people would, either. Don’t be ashamed — we are who we are and we like nice things. Like gourmet pizza. And ankle boots in three different colors. And champagne to celebrate it being Tuesday.

However, by allowing the government to hold that extra cash for me each month, I essentially am providing myself with another savings vehicle to hoard my moolah. As stated previously, once that tax refund hits my bank account, I usually send it straight to either my savings or retirement account, getting me farther along towards my goals than if I had been receiving that money each month through my paycheck. Would it technically be better to get that money straight up and put it in an investment account that earns interest? You betcha. But would I do it? Heck-to-the-no. Sometimes money is a mind game, and you have to learn how to trick yourself into getting to your goals.

If you can, make sure to check with your HR or payroll department to see the amount of exemptions you are currently claiming. If you can afford to (AKA you aren’t already living paycheck to paycheck as it is, just trying to get by on the basics), I would suggest trying to lower yours as well. It may just help you retire earlier, or get you on that European backpacking trip a year or two ahead of schedule. And that’s worth missing out on a nice pizza or two, right?

Questions or comments? Would love to hear from you!

Brittney is a CPA in Indianapolis who loves any & all carbs and in her spare time runs the blog Britt & the Benjamins, which is focused on helping people, especially women, achieve financial independence and kill it in their careers.

Image via Unsplash

  • Jack

    Listen, I know this is really nit-picky, and in the current sky-is-falling world, word choice in a blog article about tax-return tricks is not the priority. But like. Could we please just not compare an office job completing paperwork where you’re not allowed to wear pajamas or drink beer while working (the horror) to slavery?

    I know it’s a grammatically correct use of the English language and a well-accepted term for working an unfulfilling or unpleasant job. But that norm reflects the long history of minimizing slavery as an unfulfilling or unpleasant job, as opposed to a a 364-year period where 12 million people were considered objects to be bought, sold, beaten, raped, killed or simply worked to death by age 21 (the average slave life expectancy, vs 40s for white people of the same period).

    • Shannon

      I take it you’re not a fan of the 2001 hit “Slave 4 U”

      • Jack

        Yeah, but Britney never responds to my internet comments about it

  • Lauren

    It seems like a contested topic in the world of tax returns, but I hear a lot of financial gurus claim that it’s best to NOT get a tax return, which means claim more exemptions throughout the year to avoid giving Uncle Sam an interest-free loan. Your take differs from that opinion. I’m just curious, why is one better than the other?

  • Court E. Thompson

    Love this. I’ve always taken a 0 on W-4s. It’s like a savings account you forget you have.

  • Danielle

    I’ve always claimed 0 exemptions on my W-4 as well. Mostly because it was recommended to me when I got my first real job, and also, I don’t have anyone else I’m supporting. It’s like taking money out for 401k – just take out as much as you can straight off (and/or trick yourself with the 1% automatic increase) and try to work with the resulting paycheck as best you can so you can still live in the now but you’ll have plenty set aside when it’s time to retire.

    I love knowing I’ll get a nice ~$1,600 check each spring. Last year, for the first time, I even budgeted for it and used it for my yearly birthday trip & car repairs. This past year I’ve set aside money each month in a locked savings account for my birthday trip, so I’ll be using it for a down payment on a car. And the I’m planning to keep up my savings plan and use it next year as a car payment.

    I’m still paying off student loans as well though, so I’ve wondered how much it will change once those are finally paid off in the next few years as well.

  • Savanna Swain

    I do the same thing! When I was working my first jobs I used to claim ALL The exemptions because I wanted all my money and ended up OWING taxes because I wasn’t taking enough out. And let me tell you, nothing sucks more than having to PAY the government a huge chunk of money you didn’t expect to in the spring….Or worse, when it’s a lot you can’t afford and you have to make payments every month the subsequent year, which could have just come out of your check.

  • Christina M.

    I respect that you are offering a savings tip, but what you are suggesting is really poor financial advice. By doing this you are essentially giving the government an interest free loan for 1 year. What you could do instead is take that income monthly and put it straight into a savings account that could get you anywhere from 1-5% interest, or better yet invest it. You would still never touch the money and therefore not up your spending habits as you fear, but would make a profit instead of a free loan to the federal and state gov. Consider setting up your direct deposit to split your paycheck so that a portion goes directly into your savings and another goes into your checking for routine use. Play smarter, not harder when it comes to money!

    • LynnP2

      I came here to make this exact comment – why let the government profit off your money when you can invest it yourself!

  • Summer

    Claiming 1 tends to strike a happy medium for those who are hesitant to let the government have as much of their paychecks as claiming 0, but still hope for a refund come spring.

    I know it’s generally “bad advice” to advocate for using tax refunds as a method of savings, but honestly, it works and it’s fine. Especially in cases like the author described where the difference in paycheck size isn’t so vast as to leave the recipient like, “wow, look at all this extra money I can do something responsible with!” It’s definitely more like, “cool, I still have a little cash in my checking account, I guess I can spring for takeout tonight.” Particularly when we’re talking about refunds that will be sub-$2000, putting it bit by bit into a savings account over the course of a year to earn interest isn’t realistically going to do a lot for you.

    Part of being financially responsible means being honest with ourselves about how we will or won’t use money, and if doing what we can to ensure we receive a tax refund each year is ultimately going to mean more money in our accounts than if we’d claimed higher exemptions, then I think that IS the wiser choice.

    • Nila B

      I agree! I hear the whole “but you are giving an interest free loan to the government!” line a lot. And sure, I am. But I know myself, and because of this year’s refund I am significantly further down the road to saving that emergency fund I’ve been trying to save for a year now.

  • chelster759

    If you can split up your direct deposit to put a portion directly into savings, that’s probably the best approach, but I definitely prefer a refund as well come tax time. Depending on your situation, particularly if you put a lot into a 401k, have student loan interest, etc. you don’t necessarily have to claim 0 exemptions to get a refund. You can use this caluculator https://apps.irs.gov/app/withholdingcalculator/ to see how many you should be claiming, and then I like to scale it back a bit just to be safe. This past year, I finally changed my W4 to 1 exemption, and it worked out great. I got a little more each paycheck (to help counteract my increased health insurance premiums boo), but still got a >$1000 refund.

  • nycnative

    Also, I hate to break the bubble, but once your investment income starts generating significant returns/you are invested in a wide variety of mutual funds, some of which will be buying/selling stock throughout the year, even taking zero deductions on your W-4 won’t save you from owing money to the government. If the stock market goes down you won’t, but in good years (like last year) you’ll definitely end up owing something. Seriously, enjoy receiving a tax refund because you’ll miss them when you’re gone (or you’ll be paying someone to help you be as tax neutral as possible).

Pin It on Pinterest

Share This