Should You Be Happy For Not Receiving Any Tax Refund

The simplest reason why it is not a good idea to have a refund because getting one means that you have just loaned the U.S government your money without making any interest on the loan. If you are lugging around credit card debt, student loans or a negative balance of any kind, it is not the smartest financial plan. You could be making your money work for you and earning interest on it at the same time instead of loaning that money to the government. 

If you had it for that year, here’s what you could be doing with your money, around the amount of the average refund, let’s assume you had $2,800.

• You could save up for your retirement. You are giving up a huge opportunity for saving when you let the government sit on nearly $3,000 for up to 12 months. What if you bumped up your 401(k) contributions by a percentage point or two (or more) instead of waiting for the IRS to refund you your overpayments each spring? That change could earn you a more comfortable existence in retirement over several decades of your working career. A tax partner with Berdon LLP in New York, Jude Coard said that there are ups and downs in the market but if you are a long-term investor and you don’t put your money in until you get your refund, you are basically losing a year’s worth of appreciation on it. 
• You could have an emergency fund. Talking about a small chunk of change, that $2,800 is absolutely not one. You would probably be really happy you had that amount if you had an unexpected medical bill or car expense. You have to put money aside little by little since emergency funds don’t spring up overnight. An extra $233 a month would help start to fill yours out if you don’t have one. (Your goal is to have enough funds to tide you over for six months’ worth of household expenses) 
• You could pay down debt. An extra $233 a month which will turn to a refund of $2,800 will be an amount you could have in your pocket that could use to pay off debt or to keep yourself from getting into debt. About half of US households carry a  card balance, report says. Coard said that you could dedicate that extra money to pay down your balances, which could save you as much as 20 percent on that money. Keeping your balance low (or nonexistent) is a good idea so even if you are not paying that high of an interest rate on your plastic, the average credit card charges 13 to 15 percent in interest. 

How to Fix the Problem

There is no need to go rushing to your benefits department to adjust your withholding if you are getting $200 back in April. But, you should consider making an adjustment if your refund is closer to $1,000 to $2,000 and especially if the amount is a relatively big percent of your income. The IRS withholding calculator would be your best bet. It would require information such as your most recent tax return, as well as how much in the taxes have been withheld so far this year, so it is better to prepare your most recent paycheck handy. You can file a new W-4 with your employer once you find out your withholding should be. Sit back, relax, and wait for your fatter paycheck. 

If you can exhibit some self-control, then this theory that money in your pocket is better than the money you are loaning to the federal government works. You would be better off leaving well enough alone if extra cash every month will go toward eating out more often or buying yourself the most recent gadgets -- lifestyle choices, as opposed to financial properties such as contributing to retirement or savings or paying the debt. No savings is better than forced savings. 

Consider putting something in place to keep you from squandering your newfound funds if you do decide to take high (paying) roads. Set up an automatic transfer every payday from your bank account to a retirement or investment account, savings or to your student loan company. Or you can also go ahead an boost your 401(k) contributions by an equivalent percentage. Your future self will definitely thank you later.