Is Getting a Tax Refund Good or Bad?

Tax time is a pain in the butt for a lot of people. You gather all your paperwork, make sure you’re filing everything correctly, and then you get some money back from the IRS.

Really, what’s so bad about that?

But there’s an ongoing debate in the personal-finance world between people that think you shouldn’t get a refund and those that like the idea of forced saving.

Tax Refund Bad

A lot of people think tax refunds are for suckers. They think that you’re paying the government too much money out of your paycheck during the year—so you’re basically loaning the government free money with no interest charges.

Do you think they would do the same for you?

Not likely.

Usually, this argument comes from people that are in the “advanced” stages of personal finance, and typically they get very worked up about it. They’ve read a couple of books and maybe they’ve just discovered how important personal finance and saving really is.

In other words, they’ve become financially awake pretty recently and they’re kind of riding their high horse. Which is fine—we all do it sometimes.

But they really don’t like the idea of lending their money to Uncle Sam for free, so they don’t.

Tax Refund Good

On the other hand, you have people who think getting a tax refund is like forced saving. Since most people like to spend money and are terrible at saving, this gives them a decent-sized chunk of money to put towards an emergency fund or to pay off some debt.

That’s the thinking anyway, since a good bit of people probably just drop it at Best Buy on DVDs and a an XBox 360 game.

But the idea here is: people don’t/won’t save, so tax refunds are like pretend-forcing them to save. What’s so wrong about that?

The Right Answer

Have no fear, I’m going to tell you what you should think if you’re not a staunch supporter of either of these sides.

For most people, you’ll probably want to just keep doing whatever you’re doing and receive your tax refund every year. Don’t tool around with your withholdings because you may tweak them so you end up owing the government (not fun).

But if you’re a personal-finance extremist—one of those people that needs to exploit every possible fraction of a percentage point and make sure you’re doing every possible thing to squeeze money of out of every opportunity—then go ahead and adjust your withholdings so you put that “extra” money in your ING Account every paycheck instead of gifting it to the IRS.

It won’t net you much overall, but you’ll feel better that you aren’t leaving any money on the table, even if it’s like $5 in interest every year.

Whatever you do, don’t think it makes you better than anyone else—in the end, we all hate doing our taxes and we all want to get as big a tax refund as we can.

Plus it really annoys the hell out of me when people think they’re better than everyone else.

This post has been included in the Tax Carnival over at Don’t Mess with Taxes. Check it out before you file for some great tips.