Taxes.... I'm not getting something

[hoffmann2828]

I like a big refund just like the next guy, but I am thinking of having my DH's checks changed this year to withhold less.

I understand getting .25% in interest is very little - but I'd say there is a good chunk of people (myself included ) that should be using that money each month to pay off high interest credit cards.

Jenny

 

[ljcraw555]

Other People's Money.

It was tongue in cheek. We qualify for an absurd amount of refundable credits so it's not our money being returned to us.

Ahhh okay. I was completely confuzzled. LOL

 

[TheRatPack]

It is very much a personal choice. I have gotten huge tax refunds the past two years due to the adoption credit for my son. Next year, it won't be as much and I have loved getting that large amount back. So, I actually went and changed my withholdings to take out a little more so I'll get a larger refund. At the current interest rate, I'd rather have the joy of a big return than an extra $6 in interest.

From what I'm reading, any carryover from previous years gets refunded to adoptive parents this year....so this will be a big refund year for us. We've rolled over the credits for 4 years, next year would have been our last year to use the adoption tax credit. I suppose since they are refunding the rollover that we won't have any left next year though and they are phasing out the credit as it stands now for new adoptive parents.

Normally without the adoptive tax credit taking away our tax liability we get back a couple thousand from the money we pay in. We've never gotten a huge amount back without paying in....except for the adoption tax credit years we've had. My son, nieces...etc are getting all that they paid in and some of them are getting thousands back!!!! I don't understand how it works....but at least we don't have to pay at the end of the year.

I read this and it's always made sense to me....Taxes are like sausage, you don't want to look too closely at how it was made, just enjoy (or not) the final product LOL

 

[brergnat]

Savings accounts these days are practically paying nothing (between 0 and 1.5%, if you're lucky).

Having the FED hold onto it, so YOU won't spend it is actually a good method, if you are the kind of person who spends money if you have money.

We got a HUGE refund this year (approx $9k) due to DH being deployed for 6 months last year (while deployed to a combat zone, your income is tax exempt, so our taxable income was low enough to qualify us for the EIC as well, and we get the child tax credit x2). What we paid in taxes last year was returned to us; our tax liability was less than zero.

I put the refund into a savings account, and it is the beginning of our "emergency fund".

We adjusted my DH's W-4 so that next year, we will not have a refund (or a very small one), simply because we are at a point where we CAN put aside a good amount of money each month in savings, and we WILL, because we have a goal (emergency savings and house down payment). We have paid off all our debt, so we'd like as much of our own money throughout the year as possible to build up our savings.

 

[rockundergirl]

I can see it from a self control standpoint.

I just have my savings account auto take the money out on the same day I get paid, i never see it anyway. I'm not sure I want my money now as a matter of collecting interest on it, more just a matter of having it. For example it is adding 120 to each paycheck when i claim 3 instead of 1. So 6 months into the tax year I will have about 1500 dollars more in my savings account for emergencies. That's enough to make a difference if god forbid I lost my job or something.

 

[tzolkin]

There are also many people that don't understand how taxes and refunds work. They just look at the dollar amount of the refund and that's it.

I have had a very difficult time explaining to several people that even though someone gets a larger refund, they may have paid more taxes.

 

[bdcp]

We don't get credits and the only one we ever partially qualified for was the child credit for a couple of years. We're getting $750 back this year, almost where we want to be. Perfect would be we owe nothing, and get nothing, but we'll settle for $500 or less. We tweak our deductions each year to try to get there. I told our DS (24) a few days ago that what we pay in federal and state taxes will just about pay his salary as an IT tech. All these new tax credits didn't exist when we were young and much poorer. We just dealt with it.

The only year we got more than 5K back was the year we gave a large donation to our church and donated a car.

It doesn't matter how little interest you earn, you're earning something if you just take some each month and put it away instead of letting Uncle Sam use it. You're still making more. That's smart money management.

 

[timmac]

I'm so glad to see someone post like this, making this point.

I can sort of understand the "forced savings" mindset from those who spend whatever money they have, HOWEVER, the same exact thing becomes of the huge refund check as well, in most of those cases. (Yes, might be spent on a vacation or something like that but still)

That said, I try not to waste too much time or energy explaining this to people, either. Just not worth an argument, with someone who won't "get" it anyway.

Something else worth noting, is that although savings accounts may not get great interest nowadays, that's not the only cost to consider. First, if you've got debt that is accruing interest, it'd be far smarter to pay some of that down. (To be clear, I realize this requires a ton of discipline, and I can't say I do things all that well necessarily) Even beyond that though, on average, inflation means that the dollars you get back as a tax refund are worth just a little less than they were when they were taken out of your paycheck. Early in the year, where it may be just over a year until you get your own money back, that's potentially 2-3% of lost purchasing power.

What kills me more than anything though, is the naive mindset that "tax time" = "big check". The companies that advertise their services this time of year do no favors for that, of course.

 

[mrsklamc]

Something to consider if you are using it as 'enforced savings'- the government is beyond broke. Last year several states didn't issue refunds right away. It's not unthinkable that some year you might not get that money back.

You can always have that money direct deposited into an account it's not easy for you to access. Then you can at least get to it if you really need it.

 

[sl_underwood]

We are also getting a giant refund (around $22,000) and paid in less than $100. We have 3 adopted kids who all had carryover credits 1 in college and hubby is working on his masters. So a lot of credits for us. Otherwise we would get very little back.

 

[meriface11]

we're getting way back more this year than in past years. DH was unemployed for 8 months of the year and i was uncomfortable with the amount that was being withheld from his unemployment checks, so i had more taken out of mine (i figured i would rather be safe than owe more than expected at the end of the year). i also increased my 401k contribution to the irs cap (thereby reducing my taxable income), and participated in a HSA for the first time (additionally reducing my taxable income). i got a pretty substantial increase in 2010, but with the 401k, hsa and additional withholding, i only had $1k more in taxable income, but paid $3K more in taxes. we're getting it all back and then some, but next year we should be back on track for evening out.

 

[hoffmann2828]

Thanks to the PP for giving me an idea - I think I will change DH's withholding and set up automatic payments to come out the same day to pay off our Chase credit card. When that is paid off, I'll switch it to the next one - eventually when all my bills are paid, I will do an automatic savings plan. I think if you have everything set up for the same day, you will get used to it and not even think about spending it!

Jenny

 

[MrsPete]

I got back almost 3 k this year and I'm super annoyed. I claimed 1 and should have claimed 3. That means that the gov't was holding onto my money that I could have used for savings/ fun/ bill pay etc.
Reading around on the boards and also talking to my friends I hear so many people really happy that they are getting crazy amounts like 8 K, 5 k etc. back in taxes.
So what am I not following? Isn't it bad if you had to wait all year to get your money?

Nope, you're not missing a thing. You're thinking long-term, and you're thinking sensible.

 

[rockundergirl]

Thanks to the PP for giving me an idea - I think I will change DH's withholding and set up automatic payments to come out the same day to pay off our Chase credit card. When that is paid off, I'll switch it to the next one - eventually when all my bills are paid, I will do an automatic savings plan. I think if you have everything set up for the same day, you will get used to it and not even think about spending it!

Jenny

Cool, Also if you have direct deposit, you can have your payroll company split up the check, depositing part of it in your checking and part of it in your savings..

 

[bettymae1121]

I don't care for big refunds either, but I do always like to get a refund. Simply becaues I like getting a check rather than writing one! Most years we get about $800-$900 back from the feds, which to me isn't worth the trouble of figuring out what we should change on our W4's. Besides with tax laws changing year-to-year, having a bit of a cushion isn't a bad idea to me. This year our refund was a bit higher due to several factors, but still only $1100. The extra $100 a month we'd get in our paychecks just doesn't make a big difference to us one way or the other.

 

[ICF]

If you are carrying CC balances and paying interest on them, then a big refund is a no-no as you should take the pay in your normal check and pay off the CC balances to save you on interst costs.

However, if you dont have those and choose to get a big refund then so be it. It's not like you are missing out on some great saving account ROI or something. Really, a $5K tax refund would earn you less than $50 in interest over the course of the year. I suppose you could take that $416 / mo and invest it each month take take advantage of dollar cost averaging.

We get a big return...this year it will be about $5K -- $4K Federal & $1K state (due to 529 savings plan contributions). We have no CC or auto loan debt (just our mortgage) and this method works for us. The $5K will come around the same time as our HOA fees and 6 month auto insurance bills are due and those two items will take the first $1K. After that, we'll use some for our summer vacation, a new big screen TV, some minor projects around the home and save anything that is left.

If we were desperate for the money week to week, I'd adjust our witholding but that's not the case....so I'll just take my big refund every Feb / March and have a little spending spree without any guilt of what we're spending.

 

[okeydokey]

One other thing to consider is that if some people got that money in their paycheck, it would have been spent immediately. Some people purposely have more taken out as a way of enforced savings.

I think this is the biggest reason. You may not agree, but if it works for them, it works for them.

 

[dhardawa]

If you are carrying CC balances and paying interest on them, then a big refund is a no-no as you should take the pay in your normal check and pay off the CC balances to save you on interst costs.

However, if you dont have those and choose to get a big refund then so be it. It's not like you are missing out on some great saving account ROI or something. Really, a $5K tax refund would earn you less than $50 in interest over the course of the year. I suppose you could take that $416 / mo and invest it each month take take advantage of dollar cost averaging.

We get a big return...this year it will be about $5K -- $4K Federal & $1K state (due to 529 savings plan contributions). We have no CC or auto loan debt (just our mortgage) and this method works for us. The $5K will come around the same time as our HOA fees and 6 month auto insurance bills are due and those two items will take the first $1K. After that, we'll use some for our summer vacation, a new big screen TV, some minor projects around the home and save anything that is left.

If we were desperate for the money week to week, I'd adjust our witholding but that's not the case....so I'll just take my big refund every Feb / March and have a little spending spree without any guilt of what we're spending.

This is me. My only debt is my house and I have already financed that down to 15 years and am paying quite a bit extra on the principle each month so I'm not concerned. I like getting that lump sum back. I fully understand how it is an interest free loan, but I don't care. I want the lump sum.

 

[2disneyboys]

OP, I have thought the same as you, but hesitated to say so as some of the tax threads have gotten REALLY heated!

it cracks me up that my IL's get "SO" excited with thier big refund.. you'd think they won the lottery or something... I have given up trying to get them to understand that it was thier money all along, and it's true, they are the type that would just spend it each week when they got it. When DH & I got engaged (years ago) and we were discussing "dates" for the wedding and DH's parents actually requested a spring wedding, "so we have time to get our refund back". Keep in mind, we were engaged almost 3 years before the wedding and set the wedding date like 2 & 1/2 years before the event... and you can't just "save" your money for 2 & 1/2 years for whatever you need it for??? whatever...

DH & I try to keep our things balanced so that we get a little back or owe a little.. but never more than $1,000 either way. I just try & remind myself that what works for me doesn't work the the next fellow!

 

[Jeff_G]

As to forced savings, why not reduce your tax withholdings and increase what you contribute to your 401k. Now you have a forced savings that you don’t blow every year… Think long term, retire a millionaire!