Why a big tax refund isn't a win, and how to check your withholding

A big refund feels like a bonus. It isn't. It's your own money that was taken from every paycheck and returned months later with no interest. If you got $2,400 back, you could have had about $200 a month in your pocket all year.

How withholding works

Your employer withholds federal income tax from each paycheck based on the Form W-4 you filled out. If you withhold more than you end up owing, you get the difference back. If you withhold too little, you owe at filing time and may face an underpayment penalty.

Check it in ten minutes

1. Gather your most recent pay stub and last year's tax return.
2. Use the IRS's free Tax Withholding Estimator on irs.gov. It walks you through your income and credits and tells you what to put on a new W-4.
3. Give the new W-4 to your employer's payroll or HR system.

Who should be careful

• Anyone with two jobs, or a working spouse. Withholding is calculated per job and often falls short.
• Freelancers or side-income earners, who need to make quarterly estimated payments.
• Anyone who had a major life change: marriage, a child, a new home.

Aim to land close to zero: a small refund or a small bill. Our calculator shows estimated tax on your salary, which makes a handy sanity check against what your pay stub says.

This is general information, not tax advice. For complicated situations talk to a tax professional.

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