The case against receiving a tax refund

The deadline to file your tax return is rapidly approaching. To many Americans, tax return season isn’t just a bit of annual book keeping. It’s akin to a personal holiday. It’s something to look forward to. It’s National I’ve Got Some Money Coming My Way! Day.

That’s because many Americans knowingly overpay on their taxes, and then treat their tax return as an annual bonus, rather than what it really is – your money being returned to you.

A recent poll by the National Foundation for Credit Counseling (NFCC) found that nearly 60% of Americans intentionally overpay on taxes in order to receive a federal income tax refund.

"The findings suggest that receiving an income tax refund has become standard operating procedure for some people," said Gail Cunningham, spokesperson for the NFCC.

You could argue (as many do) that intentionally overpaying on taxes is the only way some people can save money. What many people don’t realize, however, is that if they can manage their monthly expenses successfully while overpaying their taxes, they could just as easily manage those same expenses while paying the proper amount in taxes, and building their savings, all with the added benefit of earning interest on those savings.

Need more reasons why overpaying on your taxes isn’t in your best interest?

  • When you overpay on taxes you are effectively loaning money to the government at a zero percent interest rate. If the money wasn’t automatically deducted from your paycheck and instead a government representative came to your door every two weeks and said, “Hey man, I need to borrow $50. I swear I’ll pay you back in the spring” would you be so excited to cut them a check?
  • If the point is to save money, you can accomplish the same thing (with interest) by having a portion of your paycheck automatically deducted each pay period and dropped into the savings account of your choice.
  • By overpaying on taxes you have less money available week-to-week, which can lead to using (and potentially overusing) credit in order to make ends meet. If you plan to use your tax refund to pay off debt, ask yourself, “Would I even have this debt if I’d had access to all of my money in the first place?”
  • How do you really use your refund? Even if you just use your refund for a once-a-year splurge, you could still achieve that end by cutting back on your taxes and ramping up on your savings. In fact, you’d be able to splurge even harder (if you were so inclined), because you'd have added interest on top of your savings.

"Often the very people who celebrate receiving a refund are those who are most in need of extra money in their pocket each month," said Cunningham. "Living paycheck-to-paycheck, people often fall behind on important priorities such as rent or vehicle payments. With the refund in recent years averaging close to $3,000, an extra $250 every month could mean the difference between eviction and repossession, yet many people remain reluctant to forego their habit of receiving refunds."

You can use the Withholding Calculator at to calculate the proper number of withholding allowances for your situation. After determining the appropriate number of allowances, you should complete a new W-4. Workers are allowed to submit an updated W-4 to their employer at any time during the year.

If after adjusting your withholdings you end up with a higher paycheck, you need to make a plan for how you’re going to use that extra money. You can achieve any goal, you just need to make sure that you’ve got the right goal and the right plan to get you where you want to go.

Jesse Campbell is the Content Manager at MMI. All typos are a stylistic choice, honest.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.