Over Withholding         

Now that tax filing season is over, we are going to address one of the chief frustrations of many CPA's - over-withholding by our clients.  We've heard your reasoning.  You don't have the discipline to save money yourself, so you have Uncle Sam save it for you.  

Also, there's always the Spring Break issue!  If you're getting a big refund check, it comes in quite handy when making your beach hotel reservations.


We have tried for years to convince many stubborn clients that over-withholding is a foolish practice.   The IRS pays no interest.  They would be far better served to adjust their withholding down and invest the monthly savings in a mutual fund or interest-bearing cash account.  

We have tried for years to convince many stubborn clients that over-withholding is a foolish practice. 


The money would still be available (plus interest) for that beach vacation in the Spring.  An even better investment would be to pay down any high interest rate credit cards you may have.  See our Debt Investment Calculator for a demonstration of the return you obtain when paying down credit cards!

It really doesn't take a lot of calculations however to clearly demonstrate with hard numbers that you can double or even triple the financial impact of your over-withholding.

Simply paying down your credit card debt each month would likely double or triple the impact of your refund.  But, what about paying down your home mortgage each month.  More than 119 million tax refunds were issued by the IRS last year for a whopping average of $2,902 per refund. 

That refund would average out to almost $242 per month in over-withholding.   If that amount were instead applied toward your home mortgage payment each month, the interest savings would amount to tens of thousands of dollars over the life of the loan. 

Of course, it must be pointed out that the additional $242 per month in your paycheck can work similar financial magic in a 401(k) plan, insurance policy, mutual fund, etc.

You have the right to adjust your withholding statement, Form W-4, on a regular basis by informing your employer.  If you are unsure about the adjustment amount, please call our office.  We can review your prior year return and assist you in adjusting your withholdings for the remainder of 2011.