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Which is better, a larger paycheck or a larger tax refund?

On Behalf of | Oct 5, 2015 | Income Taxes |

In October, it is not common to talk about tax refunds. After all, most refunds come in February and March of the following year. But money managers and financial advisors must be frustrated at this time of year, because their clients commonly do not heed their warnings about giving the federal government interest free loans by not making changes to their withholdings.

Nevertheless, taxpayers who pay too much in taxes will receive a refund this spring. This brings about the question of whether taxpayers prefer to have larger bi-weekly paychecks or an annual refund.

According to a recent bankrate.com survey, American workers prefer to have their refunds; even though they may know that they are giving the federal government a good deal on loaned money. It appears that the feeling of getting a windfall is better than saving money throughout the year. 

While it may seem like this reasoning would only apply to low income workers who need every bit of their income to make ends meet, this is also misleading. The survey also indicated that across earning levels, Americans preferred to receive a large refund instead of having a larger paycheck.

Perhaps this preference is based on workers hedging their bets that they will not owe taxes if they sacrifice a little on each paycheck. After all, owing taxes is definitely more troubling that receiving a refund.

Ultimately, taxpayers are only getting their own money back, regardless if it feels like a windfall. However, an experienced tax attorney can help if you owe taxes.

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