Am I getting back too much tax refund?

[MrMarv]

DisneySteve----I do see your point, but the problem is that far too few people out there have the discipline to do their homework, perhaps take out a couple of subscriptions to periodicals such as Money, Fortune, or a similarly-themed periodical, and work at educating themselves from a financial perspective.

 

[crisi]

The objective of everyone should be to either get as small of a refund as possible or pay as little as possible.

Actually, the opposite works if you have to pay in. If you can pay in the least amount without paying an interest penalty, that money sits earning interest until you have to pay it in, just like the money you should have not been paying in could be earning you interest. If you are going to use that logic, the more money you have in your hands and not the IRSs at any given time, the more interest you make.

The IN line is a finer one to walk, becuase unlike with a refund, if you underpay by too much, they'll charge you some interest.

We pay in each year, writing a nice five figure check to the IRS. But its money I've been earning interest on.

 

[crisi]

I went to my HR department to adjust our withholding. They advised me that increasing the number of exemptions I was claiming (which already exceeds the number of people in my family) would increase the probability I would be audited.

I would suggest you not take tax advice from your HR department. The IRS isn't telling people what triggers an audit, but middle class people with regular W2 income are not likely to get audited at all. If you suddenly claim 14 children, yeah, that might trigger an audit. But going from 3 to 4 (or five) is how you adjust your withholding. If you are worried, call a tax specialist and ask.

 

[crisi]

Whether you invest it or not, giving the government an interest free loan is stupid in my opinion. It's my money, it needs to be in my pocket.

Disagree...if you are like several posters here and can't save - money that sits interest free in the IRS hands is an improvement over money spent at Target on toys for the kids, nail polish, and 16 oz bottles of Diet Pepsi. Some people are pretty much incapable of not spending it if they have it. So if they ever want anything thats going to cost them more than they get in a single paycheck, they have to not get it until its ready to spend.

 

[mickeyfan2]

I would divide your refund by 52. Then keep adding dependents on DH's W4 until you are bringing home that amount extra in his paycheck. Then take that extra money and apply it to you highest debt (home equity, CC, school loans) or invest it for your future retirement.

 

[mickeyfan2]

How is it a gift? It is your money that they've been taking out of your pay all year. Then they return it to you without any interest. Doesn't sound like a gift to me.

EIC are free money that the government takes from my paycheck and gives to another taxpayer. So from their point of view it is free money. A killer from my point of view.

 

[disneysteve]

if you are like several posters here and can't save - money that sits interest free in the IRS hands is an improvement over money spent at Target on toys for the kids, nail polish, and 16 oz bottles of Diet Pepsi.

This is true ONLY if when that refund comes, you do something useful with it, like maybe fund your Roth. If you just use it to buy toys at Target, nail polish and Pepsi anyway, you haven't accomplished anything.

 

[crisi]

This is true ONLY if when that refund comes, you do something useful with it, like maybe fund your Roth. If you just use it to buy toys at Target, nail polish and Pepsi anyway, you haven't accomplished anything.

Well, that depends - if you are going off and spending it on little stuff - nope. But you don't have to "save" it for it to be "savings" (though for people who can't save, that would be wise.) If you are funding a 401k through work (because you know if it comes into your hands you'll spend it) and then using you tax refund as a vacation fund (because you know if it comes into your hands you'll spend it) or buying a "new" used car or some other big ticket item that you normally can't save for, that isn't as bad as nail polish.

Better would be to have money taken out of your checking account and into a "vacation fund" account or something at the bank. But since that money can be touched, where the money being held by the IRS can't....its a psychology game of tricking yourself.

In some ways, this is no different than the touted change jar. Our change jar had $800 in it last year when it got counted up - money that could have been earning interest in the bank. Yet a lot of people like the change jar because change doesn't spend as easily.