On the way to my working location for the day I heard a commercial on the radio about how 70% of people get a refund. CNN reported that nearly 8 out of 10 people get a tax refund.
The majority of people in the United States get a tax refund each year.
Who gets a tax refund?
I’ve read and heard lots of personal finance bloggers and gurus talk about how getting a tax refund is stupid because it’s an interest-free loan to the government. “You’re letting the government hold you money! For no return! That’s dumb!” Financial planners are always advising against overpaying the government during the year but the majority of us are doing it and getting refunds back at tax time.
According to IRS data, the average amount of a return was about $2,800. More than 84% of people making under 25k filed and received a return but those numbers dropped drastically as income rose and for those making $200K the amount of refunds was just 34% of filers.
In general, people might hate paying taxes, but we love getting refunds.
The psychology of a tax refund registers it as “free money” to most of us rather than money we overpaid to the government. Most of us seem to want to make sure we don’t owe the IRS money and have a bill in April and instead err on the side of caution even if it’s giving the government a loan.
So, did I get a refund this year?
I understand the logic of not getting a refund, but I still enjoy getting a refund each year. I pay in taxes directly from my bank account four times a year for quarterly estimated taxes on blog income, so it’s nice to once a year get back money instead of paying in. Thanks income from the day job!
What do people do with a tax refund?
The most common things people do with tax refunds are paying bills and buying big ticket items.
Since it is difficult to save up for a big ticket items for many people, tax refunds act like a savings account. When the check for several thousand dollars hits that means it is time to buy something big or take a vacation.
People love to take a vacation with their tax refunds!
It seems that responsible uses of the money are not very common. Only a small percentage of people use the tax refund to pay down their mortgage or bolster their savings accounts.
One the tax refund money hits your bank account, most people forget to live frugally.
So what did I do with my tax refund money this year?
I put it in savings!
I’m one of those unusual people that doesn’t make plans for my tax refund. Instead I simply put it in my savings account and feel more secure with my bigger emergency fund. I’m ready for whatever comes along! I’ve never been one to blog my tax refund money on a vacation or any big item for fun.
Even if I’m debt free I like to take that money and make sure it benefits my personal financial situation in the best way possible. The money you get from a tax refund is not a free gift – it is money you overpaid the government and they held on to without compensating you for the pleasure.
Should You Get A Tax Refund?
The quick and honest answer? No, you should not be getting a tax refund.
What’s the best thing to do with a tax refund?
Save or invest that money!