Each year millions of individuals and families go through the ritual of filing their taxes and waiting anxiously for their refund. But do they really understand that getting a big refund means they’re “doing it wrong”, as the Wall Street Journal’s Carolyn T. Geer puts it? And she’s absolutely right about that.
Here’s what a tax refund really is!
Millions of Americans appear to have no understanding of what a tax refund actually is. Receiving a refund means one thing and one thing only — that you overpaid your taxes little by little over the course of the last year. And the government doesn’t have to pay the overage back until you file your taxes sometime in the first 3-1/2 months of the next year. They got to use your money for a whole year for free! It’s like a friend asking you for $50, and you insist he take $100 instead. “You can pay me back next year, Sammy”! And did the government pay you back with interest? Nope. The loan was just a nice gift from you — an interest-free loan to Uncle Sam! You think they would let you owe them for a year with no interest, like when you underpaid your taxes? Right. They’ll not only charge you interest, but penalties as well.
Even worse, here’s what happens when you finally get your money back …
- You’ll lose a little more due to inflation because a dollar today will be worth a little less than a dollar next year.
- Face it — you’re probably going to spend your refund. Most retailers are counting on just that and start offering all kinds of deals on “stuff” as soon as tax season begins. They’re just dying to get some of those dollars coming back to you and millions just like you!
Don’t be a tax season baller! Check out these 5 Ways to Put Your Refund to Better Use.
Here are a couple of very good reasons to try to make your taxes balance out during the course of the year:
- It’s your money! Why should you wait for it? You could be putting the overage you’re paying to the IRS into a savings account, were you could be earning interest.
- You probably need the money in your paycheck, especially if you’re living paycheck-to-paycheck, as many Americans do. The extra money in your weekly or bi-weekly paycheck can really help make ends meet all through the year!
If you’re getting a big refund year after year, it’s time to adjust the withholding on your W-4 form to pay less in taxes and get more in your paycheck. Your goal is to get as close to zero as possible. You don’t owe the IRS anything and they don’t owe you either!