Tax season is an exciting time for most people. For many, a refund means a new toy or vacation while for people in student loan debt, like myself, it means a nice chunk taken off your loan(s). I got $2,000 back in taxes this year - the most I have ever received since I have been claimed as a dependent most of my working life. My taxes combined with the $1,500 left over from Etsy holiday earnings and an additional $500 from my weekly money challenge savings account allowed me to drop $4,000 on my next smallest student loan today. My ACS loan is now in the single digits, falling from $12,547 to an awesome $8,547.
While my tax refund served as almost a "forced" savings account and really benefited me, it really made me wonder what that money could have done for me had I kept it in my weekly paycheck instead. All of my working life, I had been under the impression that I should have the most taxes taken from my paycheck to avoid owing any bit of money at the end of the year. Recently, however, I learned I could "break even" by changing the number of allowances on my W4 from "0" to "1." I wouldn't get a massive refund, nor would I owe thousand of dollars - instead, I would get more money in my paycheck every week to use towards my student loans or invest into my 401(k). Come tax season, I would most likely get a much smaller refund, which is perfectly fine with me seeing as how I don't rely on my taxes to be my emergency fund or savings; I've got that covered year round.
If you would actually like to utilize the money you work hard for throughout the year, check out the IRS Withholding Calculator. This nifty tool will help you determine the number of allowances you should have based on your earnings and other important factors. When I used it myself, it recommended two allowances, but I put down one for now to see the results next tax season. I much rather receive a refund than owe, so I'm playing it safe for now. If I still get too much back next year, I'll up those allowances to 2.
Since changing my allowances on my W4, I've been getting an extra $20/week in my paycheck. This allowed me to up my 401(k) contributions to 2% instead of just 1%, netting me "free money" I otherwise would have been missing out on while I prioritized my debt.
Stop giving the government an interest free loan every year - with all my loans at a 6% interest rate, I know they would NEVER do that for me!