There has been a lot of talk about tax refunds or the lack thereof. People are getting lower tax refunds than they used to. Sometimes they even owe money, when they never have before.
The reason is fairly simple. When the government did the tax overhaul last year, they also changed the withholding schedules. Employers withheld less from their paychecks to give to the Treasury. There are a few reasons for the change.
The biggest reason was to make the tax cut look bigger for political and economic reasons. Politicians like to take credit for big tax cuts, not small ones. No surprise there.
As for economics, when people have more money in their paychecks, they are more likely to spend it, boosting the economy. Politicians like that too.
The other less cynical reason is so that people have tax withholding that is closer to the amount that they actually owe.
Getting a big refund is not a good thing unless you have an extraordinary one-off item. If you get a big tax refund you’re giving the government an interest-free loan. People do that year after year and it’s a mistake.
It would be better to either owe a small amount or get a small amount back. Of course, then you might have to change other plans if you bank on that big refund or use it as a way of forced savings.
My name is Mike Garry, and my company is Yardley Wealth Management. We are a fiduciary, fee-only financial planning, and wealth management firm in Newtown, Pennsylvania. (That’s in Bucks County). If you’d like to talk about this or anything else, please reach out: 267-573-1019, firstname.lastname@example.org or @michaeljgarry
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