Withholding lessons from filing stats

For the last few years, electronic tax filing has set records as more of us choose this method to get our returns to the IRS.

It looks like the 2008 filing season will continue that trend. Through Feb. 22, more than 38 million returns have been e-filed. That’s a 5 percent increase over the same period last year.

One of the biggest areas of growth, according to the IRS, is returns submitted electronically from home computers. More than 12.3 million returns were filed directly by taxpayers from home, an increase of almost 14 percent from the same time last year.

Overall, 46.9 million tax returns have been filed so far this year, up 1.5 percent from the 46.2 million returns that were filed at the same point in 2007.

Part of the reason for early filing is that folks want to be sure that they are on the stimulus package rebate list. In May, those checks will be sent out based on this year’s filing information.

Refund impetus: Of course, another reason folks file early is because they’re getting a refund.

Through the first three weeks of February, the IRS reports $106.7 billion has been issued, with the average refund amount $2,708. That’s 2 percent more than last year’s refunds tallies.

Directly deposited refunds also are greater, both in total refunds and dollar amounts, than last year’s numbers. So far this year, the IRS has directly deposited 33 million refunds (up 4.9 percent), accounting for just over $96 billion in checks (an increase of 5.3 percent).

The average amount of a directly deposit refund this year is $2,900, which also is slightly higher than last year’s average amount sent, at this point of the filing season, straight to bank accounts.

You can see the full accounting of the early season returns in this IRS announcement.

Adjusting withholding: Getting back money from the IRS is always better than owing. But you should aim for getting back a minimal amount.

By having too much withheld, you’re letting Uncle Sam have free use of your money.

I’ll concede that excessive withholding is a forced savings account. True, you don’t waste the money during the year. But if have such little fiscal self-control, what’s going to keep you from wasting it when you get the lump sum during filing season?

And, yes, interest rates on savings options, especially on liquid accounts, have been negligible for … well, forever.

But earning a few percent points for yourself rather than letting the U.S. Treasury have it is always preferable. Folks sure seem to lap up that "it’s your money" argument when a politician talks about tax cuts, but they ignore  it  when it comes to practical application and their savings. I still can’t figure that one out.

So if you got (or will get) a big refund, at least consider adjusting your withholding so that you get more of your paycheck during the year.

If you just can’t trust yourself with the few extra dollars, have it sent directly to a savings account. Most payroll offices have programs set up to do this.

Or up your 401(k) contribution amount so that the extra money goes to your retirement account. That way you can be sure you won’t blow it.

You can read more about adjusting your withholding in this story. The IRS has an interactive withholding calculator to help you figure out the precise changes you need to make to your payroll withholding.