Should You Take A Bigger Paycheck or a Bigger Tax Refund?

With tax time just around the corner, we find that many people are asking the same question. Should you contribute more to withholding for a bigger tax refund, or should you have a bigger paycheck throughout the year? Many people are divided on this one, and others have very staunch opinions on the subject matter. It is, after all, your money. Lending it to the government throughout the year is like an interest-free savings account. However, for many people, savings is not easy and it isn’t something they are able to do well throughout the year. Your income taxes might be the only way you ever end up with a lump sum of cash if you are a bad saver. However, it’s a bad idea in general.

For one, you might need that money at a different time of the year for an emergency and you have no access to it until you file your income taxes. Then, you’re at the mercy of the Internal Revenue Service to decide when they will send it to you. Additionally, what happens if you have a federal offset and that money is then seized and provided to student loans or back taxes or child support? You are now out all that cash and there is nothing you can do about it.

The basic question is whether or not you can afford to give this money to the IRS every week or other week or whenever you get paid. Can you afford to do that? Would an additional $100 every pay period be something that allows you to pay your bills on time, and can you afford to pay the IRS if you do owe at the end of the year? Look into your taxes, see what you can save without owing, and take the smaller refund to have more money in your pocket throughout the year. It is the wisest financial decision you could make.

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