Refunds

I used to object to people getting refunds. If things are planned properly, that money can earn interest for the taxpayer. But two things have changed my mind.

The first is the abysmally low interest rates we’ve had in the last year.  A $1000 refund would net perhaps $10 in income. This is probably not worth worrying about from a financial point of view. From a psychological point of view the pleasure of that “extra” money is probably worth $10.

The second is more subtle. There are people who cannot save.  If the refund is their only saving or they use it to pay off debt, this can be a good thing.

If you have to pay taxes now and you put the money  into an interest bearing account, good for you.  If you are getting a refund, enjoy your refund!

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2 Responses to “Refunds”

  1. Christopher Allen Says:

    I used to love getting the refund. Everyone would keep telling me, “You’re giving the government an interest free loan” but I never saw a problem with that. I am a patriot and love my country.

    However…

    The federal government, at least, pays you your refund in a timely manner. The state of North Carolina on the other hand may not pay it to you at all due to their inept abilities at maintaining a reasonable budget. By giving them too much, you risk never seeing it again or at the very least not seeing it for several months. For that reason alone, I have for the first time, changed my withholding from Married filing at the higher single rate with 0 exemptions, to Married with 5 exemptions.

    I can be fined for not paying my taxes on time, but there is literally nothing you can do to the state if they do not pay you on time or at all.

    That’s just my 2 cents worth. Wish I could file a different w4 for state than I do for federal.

    Chris Allen
    http://Dailydaydreamblog.blogspot.com
    http://www.gusgallows.com

  2. teresamccullough Says:

    That seems reasonable.

    Although you cannot file a different W4 for state and federal, you can make quarterly payments to the federal government. Even if it is a small amount, it would change the tax liability structure.

    According to someone I know in Wisconsin, the state charges interest if you haven’t prepaid your taxes, regardless of how small the underpayment is.

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