I am a 26 year old My federal withholding exemptions is a 1. Should it be a 0? If it was a 0,increased refund?

Question

I just did the free efile and my tax refund would be 16 dollars. I was a little disappointed by this.

Answer 1

I'd say that your current withholding exemption is perfect - if you are getting a big refund, that would mean that you are giving the governement too much per paycheck.

Answer 2

Little refund or owe is actually a good thing compare to a big refund. The refund is extra money the irs taken from you without interest and return the money when you file tax. Instead of letting the irs getting money from the pay check, you take that extra money. when you put that extra money in saving or investment, you are earning more money.

For example, instead of getting 1000 for refund, you get 38.46 extra per paycheck(bi-weekly) and put that money into savings with a 5.05% interest, by 12/31, you would have 1000 in savings plus 19.15 for interest. That seems to be little money, but if you do it for 30 years, that's 69077.47. Compare that to getting a refund each year for 30 years, 66438.85. That's 2638.62 difference.

Answer 3

I believe you should change your exemptions to 0. Yes, more money will be deducted from your wages throughout the year; however, it will result in you receiving a larger return when you file your taxes. Also, if you do not contribute to a 401(k), TSP or some type of retirement savings account, I suggest you do so. In doing so, you are reducing your taxable income. In other words, you are paying less taxes on your wages and you will save towards your retirement. This is something all young people should be thinking about, considering social security is not guaranteed...nor will it be enough if it still exists once we are old.

Also, it is obvious you filed single w/o dependents. If you really want to get a tax break...buy property.

Answer 4

Well, changing your W4 to 0 will result in a bigger refund, that's true. BUT you will get a SMALLER paycheck every payday troughout the year.

The net effect is that you are making an interest-free loan to the government when you get a big refund. Personally, I hate giving the government ANYTHING that I don't have to -- especially the free use of MY money!