Smart TaxesSmart Taxes

Quit getting tax refunds

Many Americans depend on tax refunds for savings. But you might be better off adjusting your withholding and opening a savings account.

By MSN Money Partner Jan 24, 2013 1:30PM

This post is by Kay Bell at


 © Getty ImagesLots of folks are grumbling about having to wait to file their taxes. Why? They get refunds.


That's no secret. Every tax filing season, the Internal Revenue Service notes that most taxpayers get refunds.


But the American Tax and Financial Center, a new undertaking by tax software giant TurboTax, has taken a closer look at this refund trend.


A federal tax refund is the largest lump sum of money received in a year by the typical American household, according to the Center. And based on 2011 and 2012 IRS data, it estimates that around $230 billion in federal tax refunds will be issued this year to American taxpayers.


They'll get this money, their money, eventually -- after the IRS finishes updating forms and its computer system to match the tax law changes Congress didn't approve until Jan. 1.

Because of that congressional tardiness, the IRS is processing returns, and issuing refunds, a bit later this year. And that could cause a lot of people a lot of problems.


Tax refunds, says the American Tax and Financial Center, are especially vital for U.S. households who live paycheck-to-paycheck and who depend on a tax refund to help cover the costs of everyday living.


Forty-two percent of early tax filers plan to use their refund to pay down debt and cover the costs of rent, food and utilities, according to the Center's analysis.


Adjust withholding instead


As longtime readers of know, I am not a fan of tax refunds. I think it's better to have your money in hand throughout the year via proper payroll tax withholding.


But I understand that a refund is an easy, forced savings account. And with interest rates on traditional savings accounts and CDs at just fractional percentage points (thanks for nothing, literally, Federal Reserve!), you're not losing any earnings right now by letting Uncle Sam be your banker.


But you are losing access to your refund money because the IRS can't get it to you as quickly as you'd like.


So just think about adjusting your withholding this tax year. That way a bit of your usual refund will show up in each of your 2013 paychecks.


Sure, Congress might finally get its act together and tax filing this time next year may be on schedule. But we are talking about Congress.


If you're afraid you'll just spend that money that you usually get as a refund, there's a way to save yourself from yourself. Open a savings account and have the amount that you're sending to the IRS via payroll withholding directly deposited in your own account instead.


Since it won't show up in your pay, you won't be tempted to spend it. And I have faith that you can leave that savings account alone until you really need to tap it.


More from and MSN Money:


Jan 25, 2013 10:11AM
Withhold no more than what you paid last year.
Jan 25, 2013 9:35AM
Many of us are not responsible enough to have "easy access" to this money.  Along with the fact that interest rates for savings accounts are practically at 0%, this article is, at best, not helpful and, at worst, harmful.
Jan 25, 2013 9:35AM
That is horrible advice to adjust withholdings for 2013. Then when they go to file their taxes next year, a lot of people will end up paying in instead. Without know what all the changes are, there is no way to know how much to change their withholdings. Horrible advice. 
Jan 25, 2013 9:22AM

I am always within a couple thousand of owing no big deal I would rather have the money. When you learn to use money instead of money using you then you can really be free. It amazes how many people will spent hours learning the stats of their favorite fantasy team, or know everything about something not really important but have never read a single book about money! The reason wait for it........they are lazy and want other people to do it for them problem is the other guy or gal needs to make a living to so guess you pays? It is not that hard....Save early in life, pay it off each month or do not spent it. STAY OUT OF DEBT. I am not perfect in this I LOVE to spent money the best money spent is that money that helps someone else best return I have ever found. Long term joy.

Just be a little smart and a little not so lazy. Just saying..... 

Jan 25, 2013 9:03AM
Heard a great idea the other day, lets make a new party called the "extension party" everybody that pays taxes on April 15th files an extension. You wanna make a statement against the government, that will hit them where it hurts
Jan 25, 2013 9:03AM
Once again MSNBC does little research into their reports.  If you get paid a bonus there is no way not to pay taxes no matter how many deductions you claim.  
Jan 25, 2013 8:51AM

Everyone has their own idea of what to do with their money. Many times the money "experts" are wrong. There is no right or wrong when you decide what to do with your money. It is your choice. You can choose to follow suggestions like this or not. However I disagree with safety nets the taxpayers have to pay. it is your choice and the responsibility is yours as well.


I choose to get a refund. To me it is like free money at this time of year. I have no plan for it. it is money that comes into our hosehold that is not on the budget anywhere. Free money to blow as we wish. We do not miss it through the year because it is not in our pocession. How we use it is decided after we get it. Usually on something fun. People say that is wasting money. Yes it is. My choice.

Jan 25, 2013 8:49AM
Too many people pay little in taxes and get huge sums back, I see it in the section 8 housing across from my work, new tv boxes, stereos, furniture boxes outside every tax season. Moms poppin babies for that fat monthly check and big check every tax season because of earned income credit. I am all for the Fair Tax, pay a tax on everything you buy, but no income tax taken from your paycheck, and best of all no refunds
Jan 25, 2013 8:34AM
What you fail to take in to account is that most of the paycheck to paycheck folks don't plan for money to pay taxes owed .. and that would be a big stress on budget .
Jan 25, 2013 7:56AM
adjusting withholding is hard, especially because you have no idea what the tax law will actually be at the end of the year because Congress doesn't do anything useful! I get a refund every year. Not because I want to, but because I'd rather have a little bit too much withheld than pay penalties and interest to the IRS if I'm underwithheld! Plus in my state I always owe more on the state return than on federal, so a lot of the time the federal refund pays for the state balance due.
Jan 25, 2013 7:31AM
well if you become a victim of tax return theft as I did you still don't have your refund from last year. it's been a year since I filed and still nothing. calling the IRS every month since last January and still nothing. I am being told by a tax advocate that the only way I can get this missing refund is to prove that I am in dire straits. I have to prove that I am being tossed out of my home before they would even consider giving me my refund...I have provided them with everything they asked for in February. I have  no faith in the way the it's handles much needed refunds.

Jan 25, 2013 5:44AM
its a easy way to save so i can pay my land and school tax ever year
Jan 25, 2013 3:12AM
It's not really forced savings, it's more like the government coercing you into giving them a loan under threat of penalties and interest.  Be careful because if you don't withhold enough, you can end up owing both penalties and interest on the unpaid taxes.  It's hardly likely that you can guess dead-nuts on what your actual tax liability is going to be since things change through-out the year, including laws governing tax collection.  I think the IRS is still charging around 18% annually for unpaid and late payment of your taxes.  That's a hefty price to pay just to reduce or eliminate your refund.  I want whatever that guy is smoking.  I seldom smoke...but when I do...I prefer Acapulco Gold with my Dos Equis!  Stay high my friends and don't forget to share your joint with the ladies!
Jan 25, 2013 2:02AM
maybe we should just keep our money and not pay taxes? I think that would work out best. Is that not why the U.S. is here? the founding fathers didn't like the tax they had to pay for tea.
Jan 25, 2013 12:50AM

I'll probably get a ration about this but here goes. I'm retired and pay my taxes quarterly and find it more convenient to roll the refund over into the next year. Makes for owing less each year. think about it.

Jan 24, 2013 11:48PM
The ideal situation is, of course, to adjust your withholding so you break even; no refund, no taxes owed.  It makes no sense to give the government an interest-free loan while you wait for your refund.  It also makes no sense to see a tax refund as a savings account when it makes no interest.
Jan 24, 2013 10:53PM

Wait, is MSN actually telling people what they should or could do with their tax refunds? Taxes that the IRS had NO LEGAL RIGHT to obtain in the first place!


Is MSN telling us that we have the option to place this legal tender that is already ours, in a bank account? Wow! Thanks for that advice, Freakin' morons.


Here's an idea... I want the IRS to replace the legal tender that they have taken from me, (under the guise that it's the "law") with actual gold and silver. REAL MONEY. Not the valueless greenbacks that we put a value on.



Jan 24, 2013 10:24PM
Yup, I never ever give the dumb a$$e$ in D.C., a interest free loan via my tax withholdings. Screw those greedy pigs.I do the same with the idiots at the state level.
Jan 24, 2013 10:14PM

You think its bad now just wait until next years when Obamacare takes hold and everyone that cant afford health insurance gets taxed even more.

Plus all the other hidden crap he put into it that he would not tell people until its too late

Jan 24, 2013 10:03PM

Every year some self appointed money person gives this advice.  Do NOT listen.  Most of us will never notice the few dollar increase changing or deductions would make.  Maybe we'll buy an extra coke.   but $10.00 a week becones $520.00 in a year.  Enough to buy something a little bit nice, start an IRA (make it a Roth), pay a chunk down on the credit card or take your loved one out for a nice evening without putting it on plastic.

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.