Why Getting a Tax Refund Check is Bad

money

Every year as April 15 approaches, I hear people talking excitedly about what they’re going to do with their big fat tax refund check. I don’t mean to burst anyone’s bubble, but here’s what you should do: adjust your withholding so you don’t receive a refund check.

Why? Because your tax refund is not free money.

It’s your money. It’s money that you already earned at your job. The reason the government has it in the first place is because you gave it to them in what amounts to an interest-free loan. It doesn’t take an accountant to know that handing out interest-free loans is not in your best interest.

I get it. I see the appeal of receiving a check after completing the awful task of filing your taxes. It feels like a reward for the hard work you’ve done. But it’s not a reward. A tax refund is money that was yours to begin with. It’s money that should already be in your bank account.

So if you receive a refund check every year, what should you do? Adjust your withholding. You do that by filing a new W-4 with your employer. The IRS even has a withholding calculator to help you figure out how much to withhold.

The goal is to make it so you and the government are as close to square at the end of the tax season as possible. If you’re doing it right, very little money should change hands between you and Uncle Sam after you file your taxes. Once you adjust your withholding, you’ll see a small increase in each paycheck. That may not be as exciting as getting a big tax refund, but at least you’ll receive your money when you earn it.

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One thought on “Why Getting a Tax Refund Check is Bad

  1. Good stuff. Definitely worth doing. I read a book where a guy laid out strategies whereby he basically never paid taxes, by reinvesting, writing off expenses, etc. Thats a way to live. On the other hand there’s always that little voice saying that its too much work to figure out how to keep as much of my money as possible. It’s the same voice that tells me its ok to pay $3 ATM fees at the airport (is it really that hard to go to my bank before a trip?), in short, not a wise voice. Thanks for the reminder that its a good thing to keep my money out of the hands of Uncle Sam. Fuck that guy.

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