Updated for tax year 2017
A common nickname for tax season is “refund season.” And that means tax filers like you are barraged with messages about getting your “maximum refund.”
Many of those messages come from tax software companies and even tax preparation storefronts. It’s certainly not new – the tax industry has been telling the “maximum refund” story for decades.
All of these messages may lead you to believe getting a refund is a good thing. But, that’s not always true. Depending on your situation, getting money back may be just what the doctor ordered, but we think it’s important for taxpayers to understand what it really means when you get a refund.
The truth? You overpaid the government. That’s right. You lent the IRS your money – interest-free.
We’re not saying you shouldn’t get any money back, but we want to help you understand what’s best for your financial health.
Use your money when and how it’s best for you
Did you know 85 percent of tax filers give the U.S. Treasury an interest-free loan for up to 16 months in the form of tax withholding?
On average, each American pays nearly $300 in excess taxes every month, essentially lending that money to the government for nothing in return. That’s money you could use to pay off debt, build savings or simply provide some extra financial cushion each month.
Moreover, consider this: a 25-year-old who invests $300 a month would end up a millionaire by the time they retire based on historical returns.
Get a raise, not a refund
By rethinking the tax refund and making a few easy adjustments during the year, you can get a little bump in pay every time you get a paycheck. Yes, that means keeping more of your own money rather than handing it over to Uncle Sam.
It’s as easy as making some changes to your allowances using Form W-4. (Otherwise known as that pesky tax form you completed during the first few days of your job.) And, now is the perfect time to set yourself up for a potential raise during 2017.
If you got a refund this year, you may want to have less tax withheld throughout 2017. If you had to pay in, having more tax withheld this year may be a good idea. Ensuring you have the right amount of tax withheld from your paycheck can make a big difference in your tax outcome next year.
So, take stock of this year’s outcome and make the necessary adjustments using Form W-4.