Why You Do Not Want To Get a Big Tax Refund Check

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Each tax season, many people rush to file their returns as soon as they can so they can get a big, fat refund check.

Sound familiar? If this is the pattern you’ve been following, money expert Clark Howard says what you need is not that refund check — but rather a reality check.

Don’t Make an Interest-Free Loan to the Government

Did you get your tax refund yet? The average refund last year was more than $2,800, according to the latest numbers from the Internal Revenue Service (IRS).

What would a check for $2,800 mean in your life this year? You could use it pay down debt, take a vacation or fund your retirement.

But we’d like to suggest another alternative for the next tax year: How about making it so you do not get that big chunk of change?

As weird as it sounds, that’s actually Clark’s hope for your wallet.

“I’d prefer that you get no refund at all. If you are getting one, it means that you’ve made an interest-free loan to the government and your money has been working for them — not you — all year long.”

People often gripe that Uncle Sam already gets too much of their money. Why give him more?

Sure, a lot of folks try to justify their tax refunds by saying it’s a way to force themselves to save money. But Clark isn’t buying it.

“While I agree that saving money is a valid concern, I believe there’s a better way to accomplish that goal,” he says.

Adjust Your Withholding at Work

Here’s Clark’s preferred alternative: If you typically get a refund of $1,200 every year, reduce the withholding from your paycheck by $100 a month. Then have your bank or credit union automatically transfer that $100 each month into a savings account.

You’ll never see the money, so you never miss it. But the end result is that you’ll build your savings and earn interest throughout the entire year.

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And here’s a list of high-yield online bank accounts that will help you save more money right now.

Just talk to someone in the human resources or payroll department at work to reduce your withholding going forward.

To make sure you’re as close to even as possible, use the IRS withholding calculator to help you decide just the right amount of money to have held out of every paycheck. This will help ensure that you meet your annual tax liability but prevent you from crossing over into refund territory.

Bonus: You’ll Make Yourself Less Vulnerable to Tax Return Identity Theft

There’s another reason why bringing your refund as close to zero as possible makes sense. If you do it, criminals won’t have any refund money to try to steal from you.

Having too much money held out of every check in anticipation of a big refund makes you a more attractive target for tax return identity thieves.

If there’s no refund, there’s nothing to steal!

Do you follow Clark’s tax refund advice? Share your opinion in our Clark.com Community or check out other conversations around taxes.

More Tax Resources From Clark.com:

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