A large refund from the IRS is not a sign of good planning , it's an interest-free loan given to the IRS. A large tax refund means too few allowances were claimed by the taxpayer.

When filing a W-4 with an employer it is best to be as accurate as possible so the proper amount of tax is withheld. It is recommended that taxpayers with large refunds from the IRS should submit an amended W-4 to their employers. Note that with more than ten withholding allowances, your employer is required to submit your W-4 to the IRS, and the IRS may ask you for supporting information. If the W-4 is difficult to fill out, then a copy of IRS Publication 919 may help.

Taxpayers with the opposite problem, meaning they always owe money at tax time, could be penalized for underpayment of estimated tax. To avoid an underpayment penalty, make sure to pay at least 90% of the current year's tax liability through withholding or estimated taxes. Most taxpayers can also avoid an underpayment penalty if they pay at least 100% of their prior year's tax liability.

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