Do you overwithhold on your taxes to get a refund each year? Why?

[CTyankee]

I know lots of people who tell me that they like to do that because then they get "extra" money, which makes them feel happy. I ask them if they know that they are just getting back their own money and if they tried to "even it out" a bit they would have that money to use all year long or invest and get interest. I have had people say they don't care and will continue to do it anyway?

Isn't this irrational? They think I'm crazy because I sometimes have to pay a bit...

[supernova]

1. I have always owed

I don't know what a refund is. (j/k)

[RebelOne]

11. Same here.

[AirmensMom]

2. I can't seem to get it right ...

and end up paying more than a little at tax time. It's a bit shocking, so I can understand why people would want to err in the other direction.

[CTyankee]

4. It's hard to get it right, I know. So you're saying it's psychological, then?

I can understand that, but it still is not rational to me, unless of course you owe so much that it is a shock.

Because some of my income is not pretaxed I often make a 4th quarter payment (on advice from my accountant) just to even things out and take the sting out of the April tax date...

[AirmensMom]

7. No, I'm not saying that.

It's more practical. If you underpay, you need to make sure you've actually saved that money. When people are living from paycheck to paycheck, it's hard to do any saving at all. It's a safer option for them to have extra withheld and not run that risk. It's easier to live without those few extra dollars every paycheck than it is to put them into a savings account. I'm not sure why.

We had to pay a lot last year because we sold the house and didn't have mortgage interest to deduct. But we didn't change harleydad's W-4 because he was in serious danger of losing his job and I thought it would all even out. But he kept his job, which is good, so we ended up in the hole tax-wise again this year. We're changing his W-4 now so that we'll come closer next year, but will probably still have to pay some.

[CTyankee]

12. It's VERY hard to do and getting it right can be a challenge, I agree.

One thing that helps is devising a budget and revising it as things change. When I first did a budget I was amazed at what I found out about my expenses. It was then that I decided to never charge more than I could pay off each month. I realize I couldn't have done that if I had had an emergency requiring me to use the credit card and pay a little each month. Fortunately, that did not happen. But I worked in the nonprofit area and was used to smallish paychecks, requiring lots of discipline to not overspend. I'm still pretty much of a penny pincher!

[AirmensMom]

15. We do a budget every month.

Have done it for over 30 years. I agree with you on that. We always pay off our credit card at the end of the month -- it's used more for convenience than anything else. However, not everyone does a budget. If you're not watching where the money is going, it's easier to spend a few dollars on stupid things than to put those few dollars to work for you.

The bottom line is that if you don't save the money yourself, for whatever reason, you might as well have it withheld and get a refund at the end of the year instead of risking having to pay with money that's not there. We haven't had a refund in several years -- but figuring out how much to have withheld so you don't end up paying a penalty can be pretty tricky.

We used to have a forced savings account for property taxes and homeowner's insurance when we lived in FL and the bills were enormous. The credit union transferred money every month and we would have to pay a penalty if we withdrew from that account more than once per year. Worked great! We don't need that now because our property tax is very low and our insurance company lets us pay monthly.

[shanti]

42. i finally got it right

and end up with a fed refund, but usually end up owing the state. go figure. it's too much trouble to fiddle with it anymore.

[TZ]

3. I do that

Its kinda like a forced way to save money for me. And actually I'm glad I did it. I used up a lot of my savings being out of work and sick last year..but I just got a nice refund check, which is very handy to me right now. Had I not had the extra withholding, I would not NOW have this cushion.

[CTyankee]

6. I can see how that helped you at a time when you couldn't handle more than just getting well.

I had to quit my part time job because of complications from surgery last spring. The follow up surgeries and recovery took a long time so I have every sympathy for you!

But normally, if you COULD balance it out, wouldn't you be better off having the money all along than not? It seems that you could budget it that way so it would work out. I think that's why everyone is constantly being told to keep a certain amount of money in reserve in case of loss of job or health problems. It's tough to do, but I think the peace of mind is a good trade off for all the sacrifices you have to make to keep money aside for a rainy day...

[TZ]

8. You make good points

However, there is something nice about knowing you are going to get a big check back and not have to pay..I've always done this and its always work well for me budgetarily. The amount I would save per week I think wouldn't make that big of a difference..while the lump sum at one time often does.

[mainegreen]

5. I agree with the above post. It's like forced savings.

We're getting a ton back this year, that if we received a bit at a time, would be much easier to spend on stupid stuff. Instead we get a lump sum which immediately gets socked away in a fund we cant touch.

[Gormy Cuss]

27. It is the reason most people do it, followed up by

the concern that if they owe money at filing time they'll need to scramble to find some extra money.

There's no question that it's better to keep the withholding to a minimum if you're able to sock it away and forget about it, but a lot of people can't and having Uncle Sam hold it works better than having it get lost in the shuffle.

Me, I've always been a minimize-the-withholding type.

[AllegroRondo]

9. I do, just in case

I'd much rather let the government earn some interest on my money, than be surprized by some change during the year and find out that I owe money. Its good to have a bit of a buffer in there.

[CTyankee]

10. I don't want the gummint to get my money til they pry it from my old

stiff fingers! I guess that's my Scottish heritage...:rofl:

[mtnester]

13. No, your Scottish heritage will make you HIDE your money

from the gummit and tell them they have taken EVERYTHING you ever had....then you will consistently choose the wrong gummit to support, after which you will be hunted down, forfeit your lands, and be "asked to leave" (that is IF you escape with your life), whereupon you will make absurd apologies, get back SOMEHOW in good graces enough to get your land and family back, be invited back to the table maybe even as best friends and THEN...rinse...repeat



(I commiserate with a fellow Scot, and love my heritage for all its puzzlements, quirkiness, blood spillin and tales.)

[CTyankee]

16. My forebear (a Campbell) came to the U.S. in the 1790s. I was told that

it was because of "the clearances." Why he came to the state of Georgia, I'll never know but would like to know. It seems that quite a few Scots settled in the South here. Do you know something about this history? I'd like to read up on it.

I am also from Welsh heritage. I just assumed it was because so many Welsh were desperately poor in the 19th century...again, English treachery, they were pretty brutal.

[mtnester]

25. Scots Irish - lots came through South Carolina..lots

which I believe Georgia was peeled out of.

There is good, easy ready with cross references on the Highland Clan Clearances at Wiki
http://en.wikipedia.org/wiki/Highland_Clearances

the wearing of plaid was punishable by death, the clearances were a BRUTAL time for Clans, and I am pretty sure your Campbell clan got some of the worst of it.

There is so much information out there...my Scots family came over first through the settlement of Stuart Town, South Carolina (current Port Royal area). They had forfeited their lands to their sons, and were "asked to leave" while leaving their families behind to ensure good behavior " (i.e. hostages) because they were Coventers who were now up shit creek now that the Commonwealth was done...sort of sucking up you will say since the Stuart's were back on the throne.

You can google Scots Irish in South Carolina, or your surname..but fair warning, you could become addicted to this stuff

:)

[Orsino]

14. If you die owing the government money, you win. n/t

[CTyankee]

17. Not if you want to leave something for your heirs, tho.

Wouldn't a lien be put on your estate?

[jakefrep]

18. As a CPA, I see that quite a bit

It's the only way some people save, and with the crappy interest rates paid by most banks, you're not losing out on much.

[CTyankee]

21. Do you think it is generational? I am older and my parents experienced the Depression.

I think they saw the big picture because they were determined to invest regularly in more solid, safer investments, never taking a flyer on flashier ones that promised sky high returns.

I remember once visiting my mother in the hospital (back in the 70s) and I asked her what rate she was getting on her CD. Her eyes opened and she said "10 percent." I knew she was going to be OK then!

[ordinaryaveragegirl]

19. I'm less inclined to just blow it when it's a lump sum.

Believe it or not. I guess it's a psychological thing...I feel more compelled to do something important. We're getting a huge refund this year, and it's going to completely pay off several debts. No way would I be able to do that if I got that money in dribs and drabs. The interest I save in the long run is a lot better than what I'd make off of it in a savings account. When I'm finished getting out of debt, then maybe I'll see it differently.

[MrCoffee]

20. I intentionally overwithhold about 1.5k each year

It's the only "savings plan" i've ever been able to stick to. Yes, I know about interest and investments, but knowing and doing are two completely different things.

If I got the money in my paycheck, I'd blow it. It's about $60 a check, and it would get spent on crap. By overwithholding, I am guaranteed to get a nice big chunk o' change in February, which I like.

[CTyankee]

22. My philosophy is "pay yourself first."

Just another way of looking at it...

[triguy46]

23. No, not for the 'refund' but for the unknown variances in the whole deal....

our refund is less than 1% of our AGI, and is just a cushion.

[azmouse]

24. We always overpay our state income tax

so that we don't have to do the quarterly filings. And that small amount of extra money in each paycheck by not overpaying would just get spent. This way we have a lump sum to invest or use to pay bills or buy something needed around the house.

[NMDemDist2]

26. I try to get it within $100 either way each year, this year it's closer to $300

but the people I know that do it the way you talked about say it's the only way they can save up a little extra cash

sad eh?

[Silver Swan]

28. I over withhold

for a couple of reasons.

If there were no penalty for under withholding, I would pay all my taxes when I file my return. However, it seems that if you owe more than a little, you have to go through a big rigmarole to show that you do not owe a penalty. I'd rather overpay than go through that crap.

In addition, large portion of my income is subject to great variation, and is not subject to tax withholding. To avoid having to make estimated payments quarterly, I just have extra withheld from the portion of my income that is subject to withholding.

[yellowdogintexas]

29. not exactly ..we both over withhold to be sure we don't have to pay MORE

the worst thing in the world is having to send the damn IRS MORE FRICKIN MONEY!!!!! They get enough of it as it is. Some years we get back a lot, some years we get back less, some years we break even. I haven't had to send them any for quite some time now.

It is fun getting it in a lump sum, it seems more meaningful in a lump than scattered across your paychecks all year.

[CTyankee]

30. I get that, but don't you see that if you KEEP what you earn

you CHEAT them out of getting their hands on YOUR money before you have to fork it over, thereby not giving them a free ride on your money?

It seems to me that your joy at getting money (which is yours, by the way) back from them is a victory for them, not you. Am I right?

[yellowdogintexas]

32. you missed my original point which is to totally avoid having to pay more in April

when we file. The tax code is so screwed up that you can't just take the normal withholds you would normally do as a single person when you are a 2 income household. If you do that you will owe money. I have never been able to figure out what formula to follow to make it all just come out even so we take the hit on the biweekly calculation to avoid having a large lump sum hit at the end of the year.

and I guess I should have said "in the years that there is a refund it is fun getting back a lump sum", because some years there hasn't been much of a refund when we both over withhold because of the math of our taxes

[ScreamingMeemie]

31. My husband and I did this each year as a way to create a lump sum

for paying off credit cards, taking a vacation, a home fixup etc... because we sucked at saving. We were nickel and dime piddlers. There's nothing wrong with withholding during the year.

And then, in the end, his withholding balanced out my self employment status. It works.

[Mutley]

33. Forced savings.

I suck at saving money, so this is one of the best ways for me to do it. The extra money on my checks would just get spent on crap. While I obviously know it's not free money, it feels like it is by the time the refund check comes in. The same way that I always put a $20 bill in my coat pocket in the spring so when winter comes again it's like I got a bonus. :D

[JoePhilly]

34. Overwithold some ... mainly to prevent owing ...

Then use whatever we get back for summer vacation.

[electron_blue]

35. Not me, but my mom does this. She says she doesn't understand the math of it.

Meaning, she doesn't understand the bit about having it all year and earning interest, as opposed to just getting a "present" the next year. Yes, it's irrational. I think she could understand the math of it if she tried, but she'd rather not deal with it and have someone else saving the money for her. I tried explaining she could automatically save it, if she's afraid she'd fritter it away,b ut she won't even discuss it.

[bookworm65t]

36. to cover my state taxes

I overwithhold on my federal taxes to make sure the state of OH's bill is covered. Our state taxes here are a pain in the ass in every way.

[hippywife]

39. I do it for the same reason.

I lived in OH until I was 38 and moved to OK when I got married. When I lived up there, I always got a refund on both federal and state. Since I got married and moved down here, we always, always owe the state. I over withhold on the federal and file it first. When I get that refund, I turn around and file my state.

We've had years when my husband has his own business that we got the biggest shock at tax time, especially the first year. Never doing that again!

Plus I really don't mind paying taxes except for the fact that such a big chunk of it goes to support the Pentagon and Dept. of Defense. If it were all going to help people here and abroad who really need it, I would certainly be happier.

[dropkickpa]

37. Oh hell no

I'm not giving uncle sam an interest free loan. I'd much rather have that money as I earn it.

[flvegan]

38. No. I'm not in the business of giving the govt a loan.

I understand why some folks do it. It's a nice "windfall" at a good time of the year.

[kath]

40. *** The IRS has a very good Withholding Calculator on their website.

You can check it a few times each year (while consulting a current paystub) to see where you stand, adjust your withholding according, and have it come out VERY close to what you will owe.

I HATE the concept of the gubmint earning interest off my money!

http://www.irs.gov/individuals/article/0,,id=96196,00.html

[quiet.american]

41. No -- all this "financial stuff" finally started making sense to me in the last few years.

Once I understood that I had the option to keep more money in my pocket during the year, I lost no time in going over the IRS website, using their tools to figure out how many exemptions I could safely take without owing money at the end of the year, and then making a beeline to my payroll manager's office.

Glad to say, I have no regrets over doing so. And best of all, I actually still received a couple hundred dollars in my tax refund this year.

It's nice when the fog clears and suddenly some understanding about all the "financial stuff" starts dawning.