Friday, February 10, 2012

Are You Still Lending The Government Money?

I have been lending the government money for years. I don't mean through bonds either, I am talking about getting a tax refund every year. I've always liked the idea of knowing that I would be getting some extra cash every year from the government. It was a nice feeling! Knowledge is truly powerful if it's used.

I was listening to Dave Ramsey one afternoon and he was taking to a caller that was getting a few thousand dollars in a tax refund. He then explained how he was actually lending the government money without earning any interest. That hit me like a ton of bricks! I thought how crazy is that to lend the government money and then get excited when they give you back your money without any interest. Who does that! Obviously people who are clueless, which I was. This is why I just had to share this!

If you're employed with a company and you're getting a refund. It means they are taking too much money out of your paycheck in taxes, and the government is just giving you back your money because you gave them too much. You may be thinking you contribute to RRSP's and you donate money to charitable foundations, so that's why you're getting a refund. I do both of those things and I still get back more than I should.

There's a form called T1213 which is a form to request to reduce tax deductions at source. Once you fill out this form, CRA will let you know if your taxes can be reduced at source or not. In my case, I was paying too much in taxes and CRA told me exactly how much I can reduce my taxes. I then sent the letter that CRA sent to me to my HR department and my taxes were reduced immediately.

This form has to be completed every year. I sent my T1213 form to CRA last October to give them enough time to send it back to me. I received the letter from CRA in November and passed it on to my HR department. They were able to process my form in time for January. I am now paying less in taxes! Whoo hoo!

1 comment:

Michelle P said...

I definitely need to change my withholding. I'm getting back way too much.