Comments: The Fastest Tax Refund Possible; Don't Give the Government an Interest-Free Loan

Here's a comment made to my post titled The Fastest Tax Refund Possible where I noted that the quickest way to get a refund was to e-file. This reader picked up on the issue of why people are getting refunds in the first place and made the following comment:

I've done payroll work for 15 years, and I start getting calls for W-2s in early January, so people can get their income tax refunds. I just don't understand why people use their income tax withholding as a forced savings program, then they stress out that they can't file for their refund on January 1st because I don't have their W-2 ready.

Lower your paycheck withholding, and subsequently increase your take home pay. Use the extra money to pay down a credit card balance, or create interest bearing savings. There is nothing wrong with paying in a few hundred dollars with your tax return, and most financial experts will advise you to pay in.

It's little effort to figure out your annual tax liability and then go to a paycheck estimator web site to figure out how to complete your W-4 so that you are only paying in what you need to.

Say it with me: "Don't give the government an interest free loan."

I have to agree. Even if you're using your taxes as a forced-savings plan, it's far, far better to get your tax withholding set up correctly and arrange for a monthly automatic transfer from your checking account to a savings account (like at Emigrant Direct for example).

Comments

[Blaine Moore (Run to Win)]

I have not had an opportunity to do my taxes yet this year, but I am hoping it comes out similar to last year. $60 return back from the state, and owed Washington $2.

[monkeyjoe]

This argument about the "government getting an interest free loan" is comical. The amount of interest for most people would probably be around $100 or so, which makes the "forced savings" argument that much more relevant. If this helps people save, then advocate people to use the "forced savings" approach. Also, the amount of interest each person could earn is nothing compared to the extra interest the government can earn with the combined withholdings of everyone.

[Jayfer]

I find it difficult to estimate how much to withhold because of the interplay between projected income and deductions. For example, last year, I felt compelled last year to give generously to disaster relief agencies, which translated into a huge refund this year. Do I plan on giving that same amount again? I hope not...because that would mean 4 more catastrophic events of the magnitude of the 2 hurricanes in the U.S., the tsunami in S.E. Asia and the earthquake in Pakistan. Also, my bonus changes significantly from year to year.