First, some refund facts:

• Federal tax refunds to individuals totaled more than $202 billion last year.
• Nearly 100 million taxpayers got refunds (3 out of 4 returns).
• The average refund was slightly more than $2,000.
• All figures to date point to these numbers increasing again this year.

Where does your refund come from? It doesn’t grow on trees (as your parents probably told you) or fall from the sky or appear by magic. It comes from your wallet or purse, when you tell your employer how much to withhold from your paycheck or you make an estimated tax payment. And in this pay-as-you-go system, you paid much more than you went. An average of nearly $40 a week too much!

When do taxpayers want their refunds? ASAP. Yesterday. Tomorrow, or not later than the day after. Isn’t it ironic that the same people who could have kept this money when they had it — but chose not to — are in such a hurry to get it back? And that they repeat this process year after year?

Some say they use the extra withholding as a “forced savings” method. But Uncle Sam doesn’t pay interest on refunds (except in special circumstances), so these people would be better off putting the money into any type of savings, or even paying down their debts. Many employers give their workers the opportunity to deposit part of their paycheck directly to a savings plan.

Of course, not everyone gets a refund — many have to pay tax when they file. Some even face a penalty for not paying enough tax during the year. They’re on the other side of the not-matching-the-payments-to-the-tax scenario.

Why these mismatches? Many people who pay too much overlook the deductions or credits they'll be claiming on their tax returns when they prepare their withholding forms or estimated taxes. Others fall short when they don't consider all their income that's not subject to tax withholding.

If your refund was more than you care to have the government hold for you — or if your balance due incurred a penalty or was more than you could comfortably pay — consider changing your tax withholding or estimated payments now, while a good part of the year is still ahead of you.

• If you’re an employee, complete a new Form W-4 and give it to your employer. Use our online withholding calculator to help you determine the right entries.
  
   
• If you’re self-employed, use the Form 1040-ES worksheet to figure the correct payment amounts for the rest of 2004.

Call an EA today for assistance in bringing the tax you pay closer to the tax you owe.