A Larger Refund is Not Always a Good Thing. Why?
While a higher tax refund may seem like good news, it’s essential to understand that it could also mean you’ve overpaid taxes throughout the year. This overpayment is essentially giving the government an interest-free loan. If you received a large refund, consider adjusting your withholding for the next year so you can keep more of your money in your paycheck instead of waiting for a refund.
What to Do: Review your withholding status with your employer or adjust your estimated tax payments if you’re self-employed.
Action Needed: Use the IRS Withholding Calculator to determine the correct amount of taxes you should withhold and make any necessary adjustments.
While the refund can be a helpful financial boost, it is usually better to manage your tax payments more closely so you can use your money throughout the year.
However, the interest-free loan might not be bad if you use your refund for long-term savings goals—like funding a retirement account or a child’s college fund.
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