The signs are all here...pollen is starting to collect, flowers are in bloom, and accountants are spending long hours poring over paperwork. Yes, tax season is in full force. While most people dread tax time, the funny thing is more than two-thirds of us PREFER to pay more than we owe by maximizing our withholdings.
A new survey from MoneyRates.com finds that 68% of taxpayers prefer to have money taken out of their paychecks so they get a refund when tax time rolls around. The average refund for the 2012 tax year was $2,803, according to the IRS. The agency processed around 148 million individual tax returns last year and issued around 110 million refunds, which means we basically gave Uncle Sam nearly $310 billion as an interest-free loan. So why give away this money?
Interestingly enough some consider their refund a forced savings plan. The survey found that nearly half of the people who minimize their withholdings spend the extra money in their paycheck rather than saving it, while less than a third of people who get a refund spend it. If you’re one who receives the average refund of $2,803 or more, then you may want to do the math. According to Richard Barrington, senior financial analyst at MoneyRates.com, you could wind up with close to $50 more a week in your paycheck if you change your withholdings to minimize the amount of taxes taken out.
Think of what you could do throughout the year with this extra dough! The smart thing is to go against the statistics and dedicate it to a high-yield savings account via automatic deposit so you won’t be tempted to spend it, and then watch it grow. Or better yet, if you have debt, use that money to pay it down. The average variable APR on credit cards today is 15.38%. Apply your tax savings throughout the year, and you could save in interest. Paying off that high credit card balance will end up being the bigger deal than the $2,803 refund when all is said and done. So, we leave you with the question, what benefits you more…to withhold or not to withhold?