Is a Big Federal Income Tax Refund Really Good News?

Every year, the IRS issues income tax refunds to taxpayers throughout the U.S., including in the Washington, D.C. area. Everyone likes to get a check in the mail, but is getting a big income tax refund good news or bad news?

According to a Gallup poll, 45 percent of taxpayers prefer receiving a large refund to a small refund. On one level, this makes sense; most of us want our tax bill to be as small as possible, so a big refund means that we are paying less in taxes.

But think of it this way: a large refund means you paid the IRS a lot more money than you owed. The agency holds onto that money, paying you no interest, until it issues you the refund.

For people who have trouble saving money, letting the government hold onto it for you might make sense. For those who are more careful, and those who want to invest their spare income, having a chunk of their cash in the IRS’ hands all year can be a significant money loser.

The Gallup Poll asked respondents who said they want a big refund why that was so. The top answer at 39 percent was that it is like getting a bonus or “extra” money. Second place, at 17 percent, was that it helped the respondents save their money. About 11 percent said it meant they could not get in trouble for not paying what they owed.

For those concerned about tax laws, a consultation with an attorney can help them understand their responsibilities.

Tags: Blog, IRS