You Do Not Want A Tax Refund. Here’s Why.

Tax season is long over (thank god), and that means that if you were supposed to get a tax refund, you should have already received it. A check from Uncle Sam may have been something that you celebrated this year, but here’s a newsflash: you don’t want a tax refund in the first place.

Your tax refund is not free money.

I’ll let that sink in for a second. I know this may come as a shock to you, because you probably love getting a tax refund. It feels like bonus money from Uncle Sam, right? And what’s better than bonus money? Plus, you probably didn’t know how much money you’d be getting back before you filed, so it’s the most pleasant surprise when you get to add some liquidity back into your spending plan. Maybe that chunk of change from your tax refund will help you get a little closer to something that’s been in your “Endgame” spending category. What’s not to love?

But here’s the thing: this is not free money from the government. Your tax refund is not like a stimulus check. Your tax refund is, and has always been, your money.

Let’s start at the beginning: what is a tax refund?

Well, you know how paying taxes works in the United States. If you work for a company, you probably get your paycheck on Fridays, look at the numbers and think to yourself: “hmm… this is lower than I thought it would be. Where’d the rest of my money go?” In all likelihood, some of your paycheck went to your healthcare and retirement accounts, but a whole lot of it went to taxes.

If you got a tax refund, that means that the federal government overcharged you for your income taxes, and is now giving you back the extra funds they took over the course of the year. It’s exactly what it sounds like: a refund. That is not cool! Sure, you get the money back eventually… but that’s money you could have been spending on rent, groceries, or investments.

Instead, the government basically took out a loan from your paycheck and then paid it back to you without interest. That’s a pretty sweet deal for Uncle Sam. On the other side of the coin, when you take out a loan from the federal government (like a student loan, for example), you definitely have to pay it back with interest. So, why is it that when you owe the government money, they charge you interest, but when the roles are reversed, the government doesn’t play by the same rules?

It’s one of my biggest pet peeves. And, it’s worth noting: while I think tax refunds are totally wrong, you’re not doing anything wrong. If you’re getting a tax refund, you’re in the same boat as many, many other Americans. But there is one way you might be able to give the government a little more info so that they don’t overcharge you. Or, at least, don’t overcharge you that much.

Here’s what you can do.

Start by going back and checking your W4. Yeah, remember that old thing? A W4 Form is one of the many pieces of paperwork you had to fill out when your company hired you. No shame if you don’t remember what it looks like, or if you didn’t pay that much attention to it at the time. Essentially your W4 helps the government project how much income tax you should be paying. Then, come tax season, you set the record straight when you file your return. When you look at your W4, see if you’re missing any credits or deductions that you plan on taking. If so, talk to your employer about submitting an updated W4. Having your W4 accurately reflect your deductions will affect how the government projects your taxable income, and should reduce the amount taken from your paycheck every pay day.