I’ve had a long and bumpy road when it comes to taxes. I officially became part of the working world when I turned 13, and was old enough to get a work permit. Honestly, I don’t remember anything about taxes as a teenager; I’m sure my annual returns were filed as part of my parents’. I went to college in another state, where I worked a variety of jobs to help support myself. That state had a reciprocal agreement with my home state, which meant state taxes weren’t withheld. Every year, I was writing a check to the government. I didn’t have a career plan out of college, so I ended up working at a restaurant while I figured things out. I did pretty well in tips, so my hourly wage of $2.35 didn’t put a dent in my tax liability. I was still writing a check to Uncle Sam every year.
You can imagine how happy I was when I finally started getting money back from the government. State refunds are dicey; Some years I owe, some years I get something back. But now days it’s usually not more than $100 either way. This year I’m getting back $81 on my state refund. Woot woot! But the federal refunds are the really exciting part! Unfortunately, my mortgage has never been enough to deduct the mortgage interest; You have to be able to itemize, and I’ve never had enough deductions to beat the standard deduction. But I was able to take educational credits some years. I don’t think my refund was ever more than $3,000. I usually expect around $1,500. This year I’m clocking in at $1,669.
I’ve heard the mantra a million times in regards to refunds: Don’t give the government a free loan! If you’re getting a refund, adjust your withholding! Keep your money all year long! I get what they’re saying. I’m still not gonna do it. Why? One reason is I’d rather get money back than owe. It’s such a fine line there, I’d rather err on the side of getting a refund. I’ve never heard of anyone breaking even at tax time.
I also don’t buy the whole reasoning that it’s detrimental to me to not have that money all year long. My federal refund of $1,669 comes out to $32 per week on my check. Sure, that money could have been making a dent in my debt. But, more than likely, at least some of that money would have slipped through the cracks. It’s much easier to piddle away $32 than it is $1,669. Every penny of that $1,669 is going toward my student loan. I couldn’t have said that for sure if I’d gotten it a week at a time.
But what about the interest? Okay, let’s consider that. I pay 3.88% interest on my student loan. Assuming I would have used all of that extra $32 per week to make an extra payment each month, I would have saved myself right around $30 in interest in 2014 on my student loan. Hey, $30 is nothing to sneeze at. But if even one of those weekly amounts hadn’t made it into a student loan payment, that $30 interest savings would have been a wash. And let’s face it, I managed to find all kinds of priorities other than my student loans last year.
We all have our own “tricks” that help us save money. Right now, getting a tax refund every year works for me. It’s a big push towards making my goal. And getting a big start at the beginning of the year really gives me motivation to keep rolling. To me, it’s worth it to get the tax refund. If I was getting more money back each year, I’d definitely reconsider my withholding amounts. But I don’t feel like $1,669 is out of bounds.
Are you getting a tax refund? What’s your take on the refund debate in personal finance?
– Cindy W.