Hello All,

This was one of the topics of discussion at the family dinner table tonight and I thought it would be a good thing to pass along to all of you.

The question is: Is it better to receive a tax refund or not? Would you rather send the Government more money in April or find out you are getting money back?

The best answer here would be to have to pay more money.

Why? Because if you are getting a tax refund, that means you have overpaid your taxes. You lost out on money which you could have used to earn interest or whatever.

However,
If you have troubles managing your money or are deeply in debt and might be tempted to spend it, then perhaps it is better to be getting a tax refund since this way you won't default on the money you owe the government.

But,
If you are responsible with money, then it is better not to be getting a tax refund and instead, have your employer take off the minimum amount required by law and finance the money so you can invest the extra money and earn interest on it. Even if you were to just let it sit in the bank, that would still be a better choice.

Captain Forest:

From a financial management viewpoint, it is always better to pay as much as possible without penalty on April 15th rather than receive any refunds, for the reasons you noted below.

However, most people get a psychological lift from receiving a substantial tax refund, even if they know it is their money to begin with. It allows them to plan for the use of that money (pay off Xmas bills, use it to fund a vacation, fund their IRA, pay off an exceptionally large and often unexpected bill, whatever). I have given up trying to convince most of them to adjust their withholding so that they would write a check.

Answer is to the point