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A bigger paycheck or a larger refund?

On Behalf of | Apr 4, 2018 | Internal Revenue Service

The beginning of April is a very popular time to talk about tax refunds; unless, of course, you are poised to owe Uncle Sam money. Nevertheless, it is still important to think about your tax return in terms of the interest free loans that you may be giving to the federal government because of the withholdings in your paycheck.

It is a common norm that taxpayers who have too much withheld in taxes through their monthly (or weekly) paychecks stand to receive a refund after they file their annual return. This brings about a highly debated question: is it better to receive an income tax refund or a larger paycheck?  

It may go without saying that most people prefer their annual refund. It generally feels like a bonus paycheck that comes at the right time of the year. It has become a spring tradition for funding summer vacations and paying off past due bills from the holiday season. The fact that they are merely receiving a small penance for giving the federal government an interest free loan is of almost no consequence.

This begs the question of whether such a preference is rooted in the fear of owing money to the federal government in the alternative. It also is worth exploring whether it is based in the lack of motivation of carefully tracking expenses and income to ensure the proper tax is paid each month (or quarter).

Regardless if the reasoning, two things are consistent across a spectrum of wage earners: People like getting a refund from Uncle Sam; so much so that they would prefer a refund over a larger paycheck. Also, no one likes owing the government money at tax time.

If you have the misfortune of owing money, even from past returns, an experienced tax law attorney can advise you.

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