Welcome to tax season! Over the next several days millions of Americans will be waiting at their mail boxes for their final forms and receipts to come in and racing to get their returns completed so they can wait for their big fat check from their Uncle Sam.
But wait, that makes it sound like some surprise inheritance that didn’t work over 2000 hours to earn, but rather like it was some benevolent gift. Hey – you know that’s YOUR money, right? They’ve kept it for a year, paid you no interest on it and then gave it back to you ONLY after you filled out 15 pages of paperwork and waited for several weeks for the check to come slowly through the mail or for the wire to hit your bank account.
I know a lot of people who intentionally pay more payroll tax than they need to so that they can get the big fat tax return in the Spring, but wouldn’t make more sense to pay less tax out of each paycheck, take the difference and put it in a savings account and earn a little interest on it? You can still withdraw it all and give it to yourself in the Spring, but now there will be more of it.
Now I realize that some people just aren’t that disciplined and if they got the extra money in their net pay every other week, they’d just spend it rather than save or invest it – I get that. But how about a direct deposit from your pay directly into that savings account so you never see it? Just a thought.
Self-discipline has never been a big problem for me when it comes to money (chocolate – yes, cash – no). I’m a saver. And I never did fancy giving the IRS money that they may change a rule mid-stream and cleverly arrange for me not to get it back.
Having spent a lot of years running payroll departments, I used to have the formula down to a science. I had my return down to no more than a hundred dollars or two… that is, until we moved to Northern Virginia. New economy, different tax bracket, state and property taxes we weren’t accustomed to and both of our Florida employers that we left taxed our vacation cash-outs wrong and the first tax returns we filed in Virginia came with a $9,000 tax bill! Ouch!
Because I’m a saver, we had the means to cover it, but it left us with little room for other financial surprises. Over the next several years I tried to find that greenback groove, but kept hitting roadblocks to a consistent pattern to the tax levels (including a half year of unemployment, a full year of unemployment, and another half year of unemployment) so we had another year with a 4-digit payment followed by 3 years of 4-digit returns… which are nice, but not what I was shooting for.
This year, quite by accident, we hit the right formula: $101.00 return! Now, it IS what we were shooting for, but I have to tell you, after 3 years of healthy returns, it was hard to celebrate my perfectly calculated $101 tax refund … especially when I’m only getting 1.1% interest on my savings account that the difference went into.
The bright side is we didn’t have to PAY. Those two years we had to write big checks were horrible. For me, I was almost as angry at myself that I blew the calculation as I was that I had to write a check that big… but that just me and my INTJ Type.
So do you loan Uncle Sam your money interest free for a year, do you shoot for the low refund or do you end up paying each year? If you had a little extra money in each paycheck, would you be disciplined enough to save it?