A tax refund is an interest-free loan you gave to the U.S. government.
A tax refund, the payment most taxpayers receive after filing, is an interest-free loan you gave to the U.S. government. But only 7.4% of taxpayers agreed with the statement “I don’t like getting tax refunds because it means I overpaid throughout the year” in a nationally representative survey of 1,039 taxpayers by LendingTree Inc.
In fact, 46% of Americans say they’re looking forward to get a refund check from the IRS this year.
Many Americans plan to use tax refunds to help build or add to a cash cushion this year, according to the LendingTree survey. Forty-six percent said refunds would go into savings, up from about 40% in the last two annual surveys. The second-most cited use for a refund was to pay down debt, at 37%.
Many consumers overpay as a sort of enforced savings program, and to ensure they don’t have to write a big check to the IRS at tax time. On average, refunds are around $3,000.
However, rather than overpay in taxes, using that money during the year to pay off high-interest rate credit cards is one way to try and ease any financial pressures, financial advisers say.
It important for taxpayers to check that you are having enough tax withheld. Those who want to try and fine tune payments so they don’t get a refund can use the IRS tax withholding estimator; you’ll need last year’s filing on hand to fill it out.
Always remember, the tax “refunds” you receive are actually interest free loans given to the federal government and paid back when the IRS decides to give the money back.
References:
- https://www.wealthmanagement.com/retirement-planning/nearly-half-americans-say-they-pay-too-much-taxes
- https://www.freelancersunion.org/tax-center/