Why You Don't Want a Tax Refund

Call me a fool, but I actually really enjoy completing our taxes. The nerd in me lights up when we can lay out the accounts for the year, tally our giving, gather our W-2s and also see what kind of refund is coming our way.

Wait a minute ... that's why I used to love tax season.

We used to get an awesome refund. Like $6,000 awesome. We used that money for vacations, savings, home repairs and all sorts of other things. It felt like we were getting a bonus every April. It felt like free money.

The Total Money Makeover changed our understanding of this pretty quickly. As we started to pay more attention to our money, we realized that this wasn’t a bonus, but rather an interest free repayment on a loan we’d given to the government. We learned that there are actually ways we can limit the amount we lend to the government,  and our goal should be eliminating our refund all together, and determining how to manage our vacations, savings and home repairs in our monthly budgets. 

We could leverage this “free money” towards paying off our debt more quickly on a monthly basis by increasing our withholdings through Ryan’s employer. At this point I think we’ve maxed out at nine allowances. 

We typically have to pay in on our state taxes and earn a refund from the federal government. We still get about $1,000 each year, but it feels less like a bonus, and we don’t count on that money as we did before understanding our finances. We apply the money where it fits our overall game plan.

Here’s a few calculators and forms you can use to see if adjusting your W-4 withholdings would help you reduce your refund.

HR Block W-4 Withholding Calculator

Turbo Tax W-4 Withholding Calculator

IRS W4 Worksheet

If you receive a tax refund as a part of an Earned Income Credit, this post probably won't apply to your situation.