Spring is when Uncle Sam does his best Oprah impression and hands out LOTS of tax refunds. Last year, more than 110 million people got an average of almost $3,000 richer.
Free money? Please and thanks.
Not so fast. Tax refunds are like Friday night plans: not as fun as they sound. Because that money was yours to begin with.
Throughout the year, US workers pay income tax to the gov. If you have a regular 9 to 5, it’s probably automatically deducted from your paycheck. If you’re your own boss, you may make estimated quarterly payments. Either way, you’re giving the IRS a cut of what you earn. If you end up overpaying, you’ll get that money back after filing your tax return. That could mean getting a refund check in the mail or direct deposit right into your bank account.
Related: How to Fill Out Your Tax Return
Why would I pay more than I have to?
You might be getting a refund because you qualify for more tax deductions or credits than you thought. But usually it happens by mistake. Think: you didn't get your W-4 info quite right when you started your latest job. (Psst...this IRS estimator could help you fix it.)
Overpaying means you missed out on money that could’ve already been living in your bank account. Or growing in an investment account. Talk to your HR department (or an accountant) if you want to tweak your W-4.
Okay, but hypothetically if I were to get a big refund this year...
You can use that money to get ahead on some of your money goals, like saving or paying off debt. Then have fun with the rest.
A big check with your name on it is always nice. Giving an interest-free loan to the government...not so much. If you’re getting a big tax refund this year, revisit your tax documents to try and lower that amount for next time.