Good Question: Is Getting A Refund The Best Deal?
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MINNEAPOLIS (WCCO) – It’s never enough, but most of us get a refund.
The IRS anticipates 75 percent of federal filers will get refunds in 2013. The average last year was slightly more than $2,800.
And of the most who get refunds celebrate, 23 percent plan on going on vacation with the money, according to a survey from Capitol One.
But why are we excited to get a refund? Is it really better to get a refund?
“From a practical standpoint and a tax standpoint, no — it isn’t,” said Denise Miley, senior manager for tax services at Grant Thornton in Minneapolis.
She does say, however, that she gets why people like getting big refunds.
“I understand that conflict, I have it in my own house. My husband likes to get a large refund,” she said.
If you get the average $2,800 refund, you’re actually overpaying your income tax by $107.68 every two-week paycheck.
“If you did owe and don’t have any penalties, that would be the best answer you could have, because you are keeping the money as long as you could,” Miley said.
It’s more of a close-call right now, with interest rates below 1 percent. You’re not losing much by giving the government a free loan. However, there is inflation, and when you get the money back, your original $107 overpayment is worth a little bit less in buying power.
Plus, if you have credit card debt, you’re paying interest on the debt, rather than paying it down with the money you’re overpaying.
Even though the financial choice is pretty obvious, from a psychological standpoint, Miley concedes that getting a large refund isn’t the worst thing in the world.
“You feel good when you get that check back, even though you know you’re giving the government in essence a free loan during the year,” she said.