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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 29, 2013 1:20PM
Under withhold to much and pay a penalty.  If I had my way I would pay it all in one lumps that I owed.  Why the withholding in the first place, it just gives govt free use of your money
If your only income is on a W 2 and you overpay the government based on your income and don't file the odds of hearing from IRS is very very slim.  I have been preparing tax returns for years and have never known anyone to receive a notice from IRS when there was only W 2 income and had over paid. On the flip side I have filed many returns 2 and 3 years late for those who did not file and had refunds coming.
The largest part of those "so called refunds" is the result of the "free money" passed out by our elected officials. I am referring to the refundable credits such as EIC "Earned Income Credit" and Additional Child Tax Credit. A true refund is a result of one over paying. For someone to receive a refund in excess of $6,000 when they did not pay one penny of income tax is nothing short of a cover up.  This is nothing but engineering the welfare system through the tax code. IRS knows EIC is the most abused part of the tax code; however, our elected officials will not allow IRS to take action because the Liberals will/have protested with "Picking on the poor".
Jan 25, 2013 8:05PM
I will quit getting refunds when the Fed quits printing money and the moochers, leeches and parasites quit getting welfare checks. Deal?
Jan 25, 2013 7:42PM

The money the fed has to return to you is basically borrowed.  Interest free.  They can borrow as much as they like without penatly but if you owe more than $1000 on your taxes, you get hit with a $100 penalty (and then some, depending on the circumstances)


Time to limit their intake as much as possible! DON'T LET THEM BORROW YOUR MONEY FOR FREE!!!  It is TIME to DEMAND more fiscal responsibility out of washington.


Too bad it seems that they keep the system as convoluted as possible.  Makes it harder for you to plan anything and keeps extra money around to be played with.

Jan 25, 2013 6:45PM
Can we just agree that some folks out there do not, in fact, have what it takes to save in a disciplined manner.  Those who say that in this circumstance the government is receiving an interest free loan are correct.  But if people who are unable to control their spending have only this as a way to save a lump sum during the year, more power to them.  It's no skin off my nose.
Jan 25, 2013 6:44PM
Watch all the commercials this time of year . They're all out there looking for you to spend your refund before you get it ! Be smart , talk to an accountant , or, the people who do your taxes to find where you need to be with withholding to keep your money , not leave it subject to all the tempting vultures that circle this time of year .
Jan 25, 2013 6:17PM
Just to clarify for some of you--the money you get back is a REFUND and the paperwork you file is a RETURN.  No wonder some of you can't save money!
Jan 25, 2013 5:22PM
Who is this guy kidding?  I've been retired four years and I've filed with the exact information each year (minor COLA past two years, but exemptions, etc. remain static) and I owed for the first and the last three have had widely diverse refunds.  I mean thousands one year and a couple hundred another year.  I thought my mind went soft so I actually had a professional look at it and was told they were done correctly.  I'm afraid to adjust my exemptions with the way the IRS changes every year with little or no notice to the public.
Jan 25, 2013 5:18PM
I'd rather get a refund than owe the IRS, those sharks are quick to pile on penalties and interest if you cant pay..i don't see the problem letting Uncle Sam hold a couple of thousand for me each year, savings accounts don't pay any interest anymore and i don't trust the stock market at all !

And to all those who criticize, I am not broke and have a savings ..very frugal person..there is just no point taking a chance that I will have one more bill to pay each year...would rather get that nice check to pay off mortgage for a few months ahead..
Jan 25, 2013 4:29PM
How many of us will go to the bank and deposit into a bank account 20 or 30 dollars a week. Have extra taken out, file your taxes, get return.  Pay a bill, take a vacation or enjoy any way you please. At today's or any other days interest it does not matter. Some of these articles are just foolish.
Jan 25, 2013 4:23PM
I want to avoid paying penalties by underpaying: every year a certain amount of my income falls under AMT. I then take that money and either put it into a SEP fund or use it as an advance on next year's taxes/
Jan 25, 2013 4:03PM

Have no fear the IRS and its changing tax table will insure we all stop getting Tax refunds by making sure we all OWE, no matter how we fill out our tax withholding forms!

I claim zero all year yet I suddenly started owing four years ago and the kicker is I never made more or got a raise, strange how a guy thats way,way,way under Obama's millionaire tax  yet I owe and the slacker 47%  keep getting tax refunds!

Gonna be a hard life when the 47% no longer can live off the rest of us!


Jan 25, 2013 3:40PM
Hubby & I go for the refund. He intentionally withholds at 0. A little more in a weekly paycheck does not help us, I'd rather see a BIG chunk so we can actually do something with it. Hubby's work doesn't offer 401K and I only work PT with self-employment so frankly, I don't care if the IRS gets to borrow it for awhile. We use it to pay down cards, debt, a nice dinner out and a few things we've put off buying throughout the year. It works for US, if you don't like doing it, don't.
Jan 25, 2013 3:28PM
I too withhold at the 0 dependent while also having the fed and state take an extra $25 per pay period, then at tax time file married and claim my dependents (now 1). I have learned to live within that mark. The nice thing, I cannot remember the last tine my "return" wasn't in the high 5 digits. I'd much rather do that than put it in a bank where they will try and nickel/dime me to death... Screw the banks!!!!!!!!!!
Jan 25, 2013 2:58PM
All these people blaming Obama...oh, did he invent the US Tax System like he invented two wars and the Tea Party?! (rolls eyes)

Whatever. Most people get refunds in tax credits, like someone else mentioned. It is what it is. I will agree with most people that it should not be used on everyday things, that is what a budget is for. But vacations, home improvements, even a nice dinner or two wouldn't hurt, and it contributes to the economy
Jan 25, 2013 2:28PM

The only reason this is being suggested and is published here is because his is a liberal news site with a liberal agenda and the liberal government doesn't know how to budget (imagine that) and they can't plan ahead for tax season when they have to pay out billions of dollars in tax returns.

Jan 25, 2013 2:03PM
When is MSN going to write about something we all don't already know this.
Jan 25, 2013 2:02PM
Now wait just a second NBC....  Once again you are running conflicting stories to run the political tide.  A week ago you had a huge story about how glad people were that the government gave them free refund money..... of course everyone, most everyone saw how completely stupid the article was.  Now you are running a big article on avoiding getting a refund.  OK, some prize reporting here.  If somone actually takes money advice from this site.... well.... then thats why you will complain all your life about other people having more than you. 
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