by Julia Wilson, Edmonson County Extension Office:
Tax Surprise? Check Your Withholding
Those who have filed their taxes early may have gotten a surprise this year.
Business Insider reports that the average refund issued in Kentucky in 2018 was $2,648, and early IRS data indicates that nationwide refunds may be down in 2019. This is the first tax season since federal tax law changes went into effect, which may mean bigger or smaller refunds than normal if taxpayers did not adjust their withholdings.
However, receiving less than expected might be a savvy financial strategy. Returns are provided when a taxpayer withholds too much from paychecks - which amounts to an interest-free loan to the government. If you have the discipline to save that money from each paycheck instead of paying it in taxes, you could be earning returns on your investments all year long.
The IRS offers a withholding calculator for a quick “paycheck checkup” at https://www.irs.gov/individuals/irs-withholding-calculator. The site also offers instructions for changing your withholding if needed.
If you’re among the 1.5 million Kentuckians who receive a tax refund, you have a choice to make. How will you use the money you receive back from the government? Consider the following options to help reach your financial goals:
* Contribute to emergency savings - at least 3-6 months of living expenses
* Reduce or eliminate debt - pay down the highest-rate debt first and apply the payment toward the principal
* Invest in the market or contribute to your retirement account
* Start or contribute to a college fund
* Renovate your home - save on energy or improve your home's value
Business Insider. (Feb. 25, 2019). Taxpayers are seeing smaller refunds across the US — here's how much the average person gets back in every state. Retrieved March 6, 2019, from https://www.businessinsider.com/tax-refund-average-by-state-2018-1
Source: Kelly May, Senior Extension Associate for Family and Resource Management
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