Are Tax Refunds Bad?

Why is a tax refund a really bad idea?

QUESTION: A listener asks Dave to explain why tax refunds are a bad thing.

ANSWER: It’s simple.  If you get a $4,800 tax refund every year, you’re loaning the federal government $400 each month, interest free.  You’re losing the use of that money throughout the year.  They’re taking too much out of your check each month – money that you could be using to get out of debt and/or build wealth.

Your goal should be to not owe anything in April and to not get a big check back from the government either.

The problem is that the IRS’s tables used for withholding do not line up with the tax tables.  If you claim the exact number of exemptions that you have, that doesn’t mean that you’re not going to get a big refund.  It should work that way, but the IRS is screwed up!  You have to figure out what your taxes are actually going to be and that’s what should be taken out of your paycheck.