Iowa State University Extension

A large tax refund seems like a great idea, but that isn't always true.  Why?     

• Perhaps you could be investing the money and earning interest throughout the year.  You give up that interest income when you let the IRS keep your money for several months.     
  
• Perhaps you would save money on late fees or finance charges if you had the money in your paycheck throughout the year.  If you paid a $5 late fee on your utility bill six different times throughout the year, then that's $30 you could have saved by getting your tax refund in your paycheck rather than waiting till the end of the year. 

What can I do to get my refund money throughout the year instead of waiting?

1. Change your Withholding Instructions on Form W-4. If you receive a large refund, it may be because you claim too few exemptions. Talk with your payroll office at work about this. 
2.  If you have children and qualify for the Earned Income Credit you can request to receive part of it throughout the year.

How?  Ask your payroll office for Form W-5 -Earned Income Credit Advance Payment Certificate.   

How Much?  Using IRS guidelines which estimate what your Earned Income Credit amount for the year might be, your payroll office distributes about half of that amount in your paychecks throughout the year. 

Example:  A worker earning between $500 and $1200 per month might receive $60 extra in each bi-weekly paycheck. 

Workers who receive part of their Earned Income Credit in advance benefit in two ways:  

• they can still expect a good refund check in the spring,
• they will have more money throughout the year - for paying the bills, paying off debts, or contributing to a retirement account.