Getting a big tax refund? It's an idle boast. If you don't overpay other creditors, why IRS, asks author with some tips

``Boy, am I getting a big refund from Uncle Sam this year!'' If we haven't already, we will probably be hearing a lot of that kind of talk in the next few weeks. Proud taxpayers, sounding as if they pulled the wool over the old tax collector's eyes, will talk about the vacation they can pay for or the new car down payment they can make with their refund.

Last year, the Internal Revenue Service paid $64.6 billion in refunds; the average refund was $850, and more than 70 percent of all taxpayers got a refund check. But Jack Warren Wade Jr. says that more than 90 percent of these people are overwithheld. To Mr. Wade, author of ``How to Reduce Your Withholding and Increase Your Take-Home Pay'' (Macmillan, New York, $6.95), overwithholding means getting a refund of more than $200.

``People seem to be proud of the fact they got a big refund,'' says Wade, a former IRS revenue officer. ``It seems to be a bragging thing or some sort of ego trip. But why should you overpay the IRS? You don't overpay any of your other creditors.''

The overpayment problem begins with the little piece of paper people fill out when they start a new job. Form W-4 lists your marital status and the total number of allowances you are claiming. Often, this is the last time people think about withholding, particularly as long as they're getting a refund.

The reasons people prefer to get a large refund, Wade says, range from fear (not wanting to owe the IRS or be audited) to money management (the thrill of getting a refund check or seeing it as a form of forced savings). He points out, however, that having to send in a check with your 1040 does not increase your chances of being audited, and there are plenty of other ways to embark on a savings program, some of which use automatic payroll deductions.

Then, instead of a refund, you have a savings account which -- unless it's in your mattress -- pays interest to you instead of the government.

Wade has no quibble with a moderate refund, which he considers anything under $200. At that level, he says, you are having about the right amount of money withheld and you can be fairly certain of not having to pay additional taxes, unless you had some additional income, such as for free-lance or consulting work, for which no money was withheld for taxes.

Setting yourself up for the proper refund begins with a relook at that W-4. Your personnel or payroll department should be able to tell you how many allowances you are claiming now, and it can provide a new form to make any changes.

Instead of a little half-sheet piece of paper, the form is now a full letter-size sheet with instructions on the front and back. Those instructions are the key to preventing overwithholding.

Until about 1970, Wade says, you could include only yourself, your spouse, and any dependents on the W-4. Now, however, there are things like ``special withholding allowance,'' ``allowances for estimated deductions,'' and ``allowances for tax credits.'' In the estimated-deductions category, for instance, you can now claim additional withholding allowances if you expect to itemize deductions.

In general, it works like this: On the back of the W-4, you add up all your expected deductions for interest payments, property taxes, alimony payments, business losses, the marital deduction, moving expenses, charitable donations, and the other usual items. Then you subtract a figure representing the ``zero bracket amount'' ($3,900 for a married couple with one spouse working, for instance) and divide your answer by $1,040. The result is the number you can add to your other allowances for the front of the W-4.

You can also take allowances for excess social security income taxes, payments you expect to make to an individual retirement account or Keogh plan, and business expenses not covered by your employer.

There is a slight catch in this, though. If all these allowances add up to more than 14, your employer must send a copy of your W-4 to the IRS, which may then ask you for information to back up your claims.

This does not mean you should not take 15 or more allowances if you have them coming, just that you should have some piece of documentation handy.

In fact, you might save some time by giving your employer a copy of this documentation to send to the IRS with the W-4.

Not everyone, of course, has a problem with overwithholding; for some it's a question of underwithholding. To these people, the tax-filing season has been an unhappy one, with the discovery that they owe several hundred dollars or more to the IRS. They may have a spouse who works part time, a higher-than-usual amount of free-lance income, or income from rents, dividends, capital gains, or royalties.

For them, it's a question of how to keep this from happening in the 1985 tax year. One way would be to pass up giving yourself some of those allowances mentioned earlier. You can claim as few as zero allowances, then take as many exemptions as are allowed on your income tax return. You can also check the box marked ``married but withhold at a higher single rate.''

Finally, for those needing drastic measures, there's a box labeled ``additional amount, if any, you want deducted from each pay.'' Here, you can simply pick a dollar figure and have it withheld from your pay. While this may be a handy way to avoid underwithholding, you can still come out ahead with your own savings program, if you can stick to it.

If you would like a question considered for publication in this column, please send it to Moneywise, The Christian Science Monitor, One Norway Street, Boston, Mass. 02115. No personal replies can be given by mail or phone. References to investments are not an endorsement or recommendation by this newspaper. Chart: The growth of income-tax refunds Fiscal year Number of individual income-tax payers (millions) 1978 65.7 1979 65.6 1980 72.3 1981 71.3 1982 71.6 1983 73.7 1984 76.0 Fiscal year Total amount of refunds (in billions) 1978 $32.9 1979 34.9 1980 44.4 1981 48.4 1982 55.1 1983 61.2 1984 64.6 Fiscal year Average refund 1978 $495 1979 518 1980 614 1981 679 1982 769 1983 830 1984 850 Source: Jack Warren Wade Jr., from IRS