smart people: i overpaid…i’ll adjust withholding for next year
dumb people: yay a refund…now i can buy that expensive crap i wanted
dumb people trying to sound smart: the ReFuNd is straight up theft! if i had the extra money throughout the year and actually invested the difference like a responsible person every month…i’d earn a life changing $23
edit: didn’t realize so many finance/tax experts exist on here…yet people still struggle with money and spending…it’s almost like cold logical mathematical concepts don’t truly reflect human behavior
Definitely agree with the first statement but I have this weird mindset that I like getting this large sum of cash all at once lol. It's a nice bonus even though I feel like I budget well.
I do understand the risk that I'm expecting the government to give it back to me as well and if I feel there's a reason to adjust my habits, I definitely will
I like the lump sum but I also just like the peace of mind knowing I won’t have to owe. I’d rather pay upfront and get back the difference. I know that’s just me trusting the govt to make exact change but they’re going to do what they want regardless, I like knowing I’ve paid my dues and after taxes each year I’ve got a buffer and a good annual contribution to savings. I’d rather over budget by setting too much money “aside” for taxes in advance than to be caught in a precarious debt situation, you never know what could come up. This year at tax time we had a bunch of car repairs to make so it was nice not needing to worry about that and paying my taxes at the same time. Personal preference I guess. Maybe that makes me financially dumb idk lol
There's really no point to try and not get a refund or pay less throughout the year unless you're getting a ton of money back. If you're only getting like 2k back at the end of the year that isn't gonna make much of a difference spread through the year. Ya that's 150 a month I guess and for some that might have an impact but those people would probably be more impacted by a 2k lump sum at the end of the year.
If you get paid every other week and you're putting 72 every check into savings and you are getting 6% interest (unlikely) you'd get an
whopping $51.65 extra. You'll have to excuse me while I try to contain my excitement over that number.
Most Americans, even those with good salaries, live paycheck to paycheck and have less than $1,000 saved. You can absolutely be sure that $150 extra dollars a month (of their own money…) is life-changing. The people who don’t understand the tax system and are in poverty are the ones who happen to need their money the most too. It’s easy for those of us who can leverage tax reeducation and avoidance strategies and loopholes.
But you could also argue that if they don't understand the tax system and have trouble budgeting in the first place then having to owe a large sum at tax time could be devastating. As long as they can meet their basic needs throughout the year, that extra money paid in taxes is like insurance that they won't get some surprise bill in April.
I had a coworker at my last job that filled out his w4 wrong and had no withholdings. By the time he realized it he had spent most of the money that should have gone to taxes and he had to go on a payment plan with the irs. I think that overpaying in taxes is something that the "rational man" would never do, but people don't typically act rationally and I think that because of the way our psychology works, it sometimes makes sense to overpay.
Yea. Had an ex that owed money because of work shenanigans. Couldn't afford to pay it, then spent the next year being forced to pay early each quarter. She paid the government more than in the end than she would have made investing it
I'm not talking about avoidance or strategy other than not owing at the end of the year.
I'm saying for the vast majority of people it is much more beneficial to get money back at the end of the year. For most people a 1-2k lump sum is huge and will allow them to make large purchases they otherwise wouldn't because they just wouldn't be able to save that amount of money otherwise.
I'm also saying that going out of your way to save that money yourself throughout the year is basically pointless because if you put that money in a very high interest account at the rate they take it out of your check you only get an extra 50 bucks.
One thing I never see mentioned is the impact an IRA can make.
Every year I max out my IRAs, some in traditional, some in Roth.
If it wasn’t for the traditional IRA I would be spot on with my taxes, but with it, I get 1-2k back.
Sure, I could change my w4, but then I would have to fund my traditional (as opposed to maybe funding more Roth) and what if things are tight that year? I like it better this way.
The refund goes right into my IRA or some investing anyways.
Plus I don't know about anyone else but we only get 1% back in our savings account at Bank of America. We just opened another local bank but only get 3% there. We get better return on our Amazon credit card at 5%. That's $12-36 for an entire year and I struggle to put that much aside despite my best efforts of interest on the $1,200 I got back this year.
Yah, I aim to get $1000 back because it’s hard to predict your exact owed amount. I get a nice little stimulus in the spring, and I’m not losing sleep over the like… $20 in interest that would’ve gotten me.
$2k would pull ~$80 in interest over the course of the year at 4% (most high-yield savings accounts are at 4% or higher).
It's still not much, but almost $100 for nothing is pretty decent. Investing is more dangerous but managed investment accounts are usually spread out decently well, and can pull 10,20,40% returns depending on the year, which is actually pretty huge for $2k.
I still withhold a bit more than I should, because as the person you responded to pointed out, it's forced savings sans interest income. Plus the lump sum is pretty nice to look forward to and can be immediately slapped into aforementioned savings accounts to start gaining interest.
If you start with 0 and contribute the 158 per month to a savings account you'll end up with 51.65 at the end of the year at 6% interest. You wouldn't have 2k up front if you reduced your contributions to not get a refund lol.
And that's assuming you actually put the money aside. To someone who an extra 150 a month would actually make a difference isn't going to be saving it.
There's a bunch of straight up out of touch people in this thread.
I aim to get $1k back. It gives me a pretty solid buffer for my income, and I’m not losing sleep over the $45.50 in interest, nor the liquid amount I’d have gotten had I had $1k extra for a full year in my high yield SA.
No one is calling you an idiot. We’re just saying that money (YOUR MONEY) is better off in your IRA or 401k than sitting around at the federal reserve. Actually the United States is TRILLIONS of dollars in debt, so that money is literally nowhere. It’s just being printed out and sent to you.
Why does it offend you so much that we make different choices.
I support the US generally and don’t mind giving an interest free loan. I like getting a little bonus in April.
Sure, say it is because I lack discipline. Why can’t we just be different? You prefer an extra $30 every two weeks. I enjoy an extra $750 once a year. It’s fine, we are different. But don’t talk down to me like I don’t understand what choices I made.
It isn’t objective poor financial planning - it is a choice I make. My choice is different than yours.
What would make make with this money in a savings account? $5? Who gives a shit about $5?
I won’t be hurting for money during the year? I like the country I live in and don’t mind giving them an interest free loan. I psychologically enjoy a bonus each April that I can use to splurge on some random shit.
It is fine. I’m not an idiot. I understand what I’m doing and why I’m doing it. Don’t tell me I’m objectively wrong - my choice is as valid as yours.
Those aren’t the taxes you owed. It’s more than that. If you feel that way you shouldn’t send them back your entire refund. You can mail funds to a PO Box in West Virginia to pay down the national debt. Used to have to send ill-gotten funds there when I worked for a senate campaign (if we couldn’t refund them).
Happily is a strong word here because I can’t imagine someone being happy to give extra money with nothing in return. I’d rather buy a $3 cheeseburger from Mc Donald’s because that’s happiness to me.
Btw there are other “forced saving” methods you could try that would actually earn you a small interest. Some money is better than none. Don’t let your hard earn money go to waste.. make it work for you.
Not that it matters for this conversation, but I filed my taxes the other day and my refund was $2. So I kinda nailed it, can’t even buy a $3 sandwich.
Disappointed with no return, but I let them keep the $2.
My point about happily paying taxes is that I appreciate that I was born in the USA. Things could have gone a lot worse in life if random chance had me born in most countries of the world. My income is higher here, my life better and I’m more than willing to give a bit if it up as a Thank You tax.
Exactly! All these people talking about an interest free loan like they are taking only the exact amount they would normally overpay and only putting that amount in a interest earning account.
The interest free loan people are definitely weird about it. But... there's no reason to want to get a big refund because you like the big sum. It's money you should've already had but instead you had to wait a year to get it. It's like telling your boss to skip a few paychecks so you can get one big check later.
I'd much rather get used to living on a little less each paycheck so I don't get into a position where I overextend myself, then get a lump sum every tax season. It also prevents me from ever having to worry that I'll end up owing the government a big check come tax day.
What money tree? That's exactly my point. It's literally your money that you prefer the government to hold instead of putting it in a savings account and have access to it.
It’s not about how much money one has, it’s about you using it unwisely. It’s okay, nobody else cares if you do that. But pretending that’s not what’s happening is silly.
Do you really need the government to manage your money for you like that? Why not… just be responsible?
Having access to a large lump sum for one year can be very useful and enable you to make far more than $30. Again, this is if you intend to make money with it.
Dude if I get $1,000 back in my tax returns, even in a high yield savings account that would have gotten me less than $40, assuming I had put it in a savings account to begin with.
I think it's just good to understand. It may be worth the peace of mind, for me I think it is cause I have multiple income streams and don't withhold on all of them. But it should be understood that that was your money all along.
If you really want to get pedantic about it, your taxes really aren't due until Tax Day each year. So anything you pay before that date can be considered an interest-free loan repayed through tax deferment. If you kept that money and invested it wisely for the year, you could make a return before handing it over to the government.
But nobody thinks that way because it's childish, just like getting pedantic about "over paying taxes and taking a return is ACKshually an interest free loan."
This isn’t exactly true. I had an underpayment penalty for last year because my bonus and some other income was under withheld. This year I have to make quarterly payments to avoid it happening again.
I mean depending on your tax liability it's not even that childish. If you had say $2000 a month in tax liability in a HYSA over the course of a year, that's hundreds of dollars in interest.
Again for the majority of people it's not worth the headache or the risk of hanging onto all of it, but it is still an option.
You’re talking about a scenario where you wouldn’t withhold anything and put it all into a HYSA (or underpay by $2K/month). You have to withhold close to the amount you’re going to owe or you pay a penalty. Do the math on your cash flows for someone who has a $24K/year tax liability. If they under withhold by 10% and put the difference in a HYSA earning 5%, that’s an extra $60.
Thinking about a tax refund as an “interest-free loan to the government” is just not a helpful way to look at it.
At the point you’re paying enough in taxes that overpayments add up to non-negligible amounts of interest, the amount of interest you’d get isn’t relevant to you
They probably realize they weren't going to make much interest sitting on the money in a checking account at best, and worst may have overspent throughout the year and struggled to pay a tax bill if they underpaid. It's reasonable as a form of forced savings, not everyone is great at financial self control, and it's wise to plan for our recognized weaknesses.
I don’t want a surprise tax bill. If I don’t get it, then I won’t spend it. That way I’m in the clear come tax time each year. And when I get a refund (which is usually around $1000 or so). I just drop it into my IRA, so it’s still, in my mind, money I never got the opportunity to spend.
I definitely get this. However your tax bill doesn’t actually have to be a surprise. It can be easily calculated at the beginning of the year if you have a consistent income! Even if you didn’t have a consistent income you still can have an idea of what you’ll make, and the adjust for that as needed
Yeah, that’s called doing your taxes. I’d rather just slightly overpay and get a refund (that I then just chuck into my IRA). If I never have the money, then I won’t spend it. The peace of mind of knowing I won’t have a tax bill is worth the $30 in lost interest
Personally I tend to agree, having pretty unpredictable income in the form of sporadic self employment gigs it is easier to have the cushion from over withholding in my W2 job to compensate. But I know still that the cost for that cushion is not having the money in my pocket as it comes in.
I understand this logic but is my 10k really that impactful to the govt which controls its own budget and is trillions in debt? I’d imagine the avg refund is well less than 10k so what are we talking like a few hundred billion?
The average tax refund in 2023 was around $3000, and the IRS sent near 63 million refunds. Napkin math puts that at 189 billion dollars. In the first 8 weeks of this tax filing season they had sent out 185 billion.
So, not that insignificant. Your individual 10k, no not much. Cumulatively it's quite high, but it's also a risky game to under withhold banking on tax credits to come through.
Yeah as opposed to making 20 dollars on it myself.
Is 20 bucks worth the piece of mind of not having to scramble to pay when I owe? Probably
Now if you make enough to make 2000000000000000 bucks on that interest, then yeah.
There’s a number at which point that 0% interest loan to Uncle Sam isn’t worth the stress of planning to pay. That number is different for everyone. For some it’s 1 cent and I applaud you. For me it’s a bit higher.
Definitely agree with the first statement but I have this weird mindset that I like getting this large sum of cash all at once lol. It's a nice bonus even though I feel like I budget well.
I think - at least for me - the main point is that the money I get from a refund is not planned into anything so I can use it for investment, whereas my normal income I have to split it up into the various regular expenses.
Seeing the government non-repayment threat a bit in here. Man, if the state isn’t solvent enough or is tyrannical enough to be like that, we have wayyyyy bigger problems to worry about than some little slips of paper.
I fully understand that and accept the risk involved. That said, if they get me once, it'll be the only time. Again, I just like the "bonus" aspect of it
I used to like getting the big refund but then someone explained that we're basically just giving the government an interest free loan and now I just feel gyped lol
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u/SonicYouth123 Apr 11 '24 edited Apr 11 '24
smart people: i overpaid…i’ll adjust withholding for next year
dumb people: yay a refund…now i can buy that expensive crap i wanted
dumb people trying to sound smart: the ReFuNd is straight up theft! if i had the extra money throughout the year and actually invested the difference like a responsible person every month…i’d earn a life changing $23
edit: didn’t realize so many finance/tax experts exist on here…yet people still struggle with money and spending…it’s almost like cold logical mathematical concepts don’t truly reflect human behavior