Are you giving Uncle Sam an interest-free loan?
Getting a tax refund? For most Americans it's the biggest financial pay day of the year. The average refund was $2,700 last year.
"Surveys show the majority of the people who receive a tax refund will do smart things with it, such as pay down debt, make planned purchases or build up an emergency savings account," said Paul Golden, media relations manager at the National Endowment for Financial Education.
"So having that tax refund can be a useful financial planning tool for some."
But is this really the smart way to save, overpaying your taxes?
It might make sense if you pay your bills on time, don't have credit card debt and have the discipline to use that refund wisely.
If you're scrimping to get by and piling up debt throughout the year, but getting a large tax refund - you'd be better off adjusting your withholding to get more money in each paycheck.
Rather than giving Uncle Sam a tax-free loan, you'll have that money throughout the year to pay bills and reduce credit card balances.
For more information
Tax refunds are 'windfall' for most American families
"Surveys show the majority of the people who receive a tax refund will do smart things with it, such as pay down debt, make planned purchases or build up an emergency savings account," said Paul Golden, media relations manager at the National Endowment for Financial Education.
"So having that tax refund can be a useful financial planning tool for some."
But is this really the smart way to save, overpaying your taxes?
It might make sense if you pay your bills on time, don't have credit card debt and have the discipline to use that refund wisely.
If you're scrimping to get by and piling up debt throughout the year, but getting a large tax refund - you'd be better off adjusting your withholding to get more money in each paycheck.
Rather than giving Uncle Sam a tax-free loan, you'll have that money throughout the year to pay bills and reduce credit card balances.
For more information
Tax refunds are 'windfall' for most American families
I have an extra $50 taken out, and I claim zero on my w-2. I know i'm giving uncle sam a "loan" so to speak. One year I adjusted my with holdings, sadly in the end, by to much on the advice of others and ended up owing uncle Sam 1800 I didn't have. Took 2 years to pay it back. Since then we both claim zero on our w-2's and each have an extra $50 taken out each payday. After being bitten hard by the "adjust your with holdings" advice BS, I'd rather have too much taken out and get $1400 back than have to owe money again.
@BlueJedi You can claim yourself and a spouse and children but they can't claim you or your children. If you claim more then you have in your household you will be fined by the IRS and owe more then you should.Â
@Brittany Hughes @BlueJedi Not true. I know plenty of people that claim "4 to 6" on their taxes to account for "write offs" and they have never been fined.
With the low interest rates the banks are giving out it is not that much interest that I would earn on the money that would take some effort to save. This year I got back nearly $2000 and that covered a nice used 1985 GMC S15 I wanted and bought a few other nice things. I am aware that I am effectively giving Uncle Sam a no interest loan but I consider that not much of a problem as I look at it as a means to saving for yearly mad money. Some years it is for a new computer upgrade, or a nice vacation. Others years I have used it for buying another vehicle or paying for moving expenses. A large tax return is just an easy means for me of putting together a lump of cash that I can plan on using for something nice that I would otherwise struggle for several months to put the money together on my own.
My best year was when I got back $54. I don't want to owe but I don't want to give anyone a interest free loan.
@DeadRabitz My best (and worst) year was when I had to write an check to Uncle Sam for $18,000.
@Stock Woodie @DeadRabitz my worst was when I got a 19000k refund. Yea big refund, only spent 30k plus getting it. (Adoption tax credit, + a 7 k loss on a rental property) the best part was having to pay over 300 to file and then waiting for the internal audit.
@DeadRabitz @Stock Woodie Mine was mainly due to capital gains taxes.
I would love to be getting refunds. I haven't had a credit card debt in 12 years, I haven't been late paying a bill for a whole lot longer. When I was working I had automatic savings withdrawals My sister chided me when I told Social Security to withhold taxes on my payment. My pension has taxes withheld and I STILL have tax bill of somewhere around $1,000 for last year.
At about .25 percent interest the banks are doing just about the same thing. Using your money to make money and paying very little for using it.
@Jatok check this out. You can find banks that pay more. Heck there is one for kids paying 2%.
http://www.money-rates.com/savings.htm
Thank you for the information. I did notice though that the banks paying the most interest also have a minimum amount that has to be on deposit to get it and a penalty if it goes below. I am inclined to think the banks are getting used to using people's savings for very little and perhaps making the profits. This is the most pathetic return on savings I have ever seen, hopefully it isn't the new permanent trend.
I love the dumb people who have no idea why they are getting a refund but think it's some kind of government handout. Â The puzzled look on their face when you tell them it is your money that they are giving BACK to you is priceless. Â Adjust your deductions to get as little back as possible at tax time.
@oledawg I have an extra 100 taken out each payday just to make the refund bigger...I understand it is my money, I am not stupid I just like it that way; but then that is just me. I don't miss the 100 at all, thing about increasing it to 200 just for the heck of it. One thing, I have never understood why some people worry about what other people do with their money, only worry about your own.
@Crimsonkid @oledawg Why not put it in your own savings account?  It's not that I am worried about it, it's just not a smart way to tie up your money.  The last thing I am going to do is give the government my savings and have access to it once a year.
@Crimsonkid @oledawg I don't think others "worry" about your money, but it is sound advice.
@oledawg I got back $6.00 this year. I would rather have my money on my check and put that in my savings.
@oledawg It's rather bothersome that people over age 25 or so actually think this. I could see explaining to a 17 year old. So year after year, working daily, paying taxes, and you cannot comprehend that it was your money originally, just withheld?Â
@Hadrian @oledawg I love the ones who brag about how large their refunds were, like that makes them special or better than the rest of us, LOL!
@oledawg @Hadrian I tried explaining it to one of my soldiers that he is simply letting the government hold his money for free and he would have more money each month if he changed his deductions. He didn't get it.
Yeah, I realized this last year and adjusted my withholding. Of course if you want to save, you can push a percentage of your paycheck to 401K or a separate savings account. With interest being where it is, I might be more inclined to go 401K. Of course if you have debts, it would be silly to save at 2% when you are paying 8% and more.
What people use it for is a lazy man's way of saving money. Instead of setting up an automatic withdraw from your pay that is placed in a bank or S & L they under declare their withholding tax to do the same thing. With the low rates that banks are paying on savings and checking it is about a push on which way to do it. Once the interest rates climb a little it makes better sense to use the automatic withdrawl
@LongBeachBum I use it as a "buffer" because I'm not always sure how much stock I might sell in any given year. It's nice to have a buffer to offset Capital Gains.
Interest-free loan maybe? Just a guess.
Tax-free loan? That doesn't even make sense. I believe the term they were looking for is "Interest-free loan", not tax-free loan....just sayin....
The reason people have large refunds, gets back to the problem with the IRS,. If you take the proper deduction at the end of the year you owe. The beginning of the year when taxes are due is not the time to figure how to pay the government. Now if we knew what was necessary to pay, like a flat tax, no problem.
@darkhelmet  Just a giant built in scam. The longer they keep your money the more money they make off of it. At least in states if you have to post a bond you make interest on that money while the state keeps it as collateral. We get the government we deserve.