From Black Voices — The IRS reports that 75 percent of taxpayers get a tax refund check each year, and that the average income tax refund is currently about $3,100. Getting a refund check after a year of hard work often feels like a bonus, but isn’t a tax refund more like giving the government an interest-free loan?
The reason why you are getting a refund in the first place is because you ended up paying more taxes than you actually owed over the course of the year. That money could have been left in a high-interest savings account or put to some good use.
Consider the following 8 reasons why getting a tax refund check is really not a good idea:
1. The government could seize your money.
Did you know that you could be eagerly awaiting a nice, big tax refund check only to have it snatched away by the government? It’s true. When you owe certain debts, the IRS or the U.S. Treasury Department’s Financial Management Service, the agency that issues tax refunds, can keep all or part of your refund check as an “offset” against various delinquent debts.
What kind of delinquent bills can put you at risk for having your tax refund check snatched by the feds? Everything from past-due federal or state income taxes to unpaid child support and court-ordered alimony to defaulted federal student loans. Under these circumstances, the IRS can legally keep the refund check you expected to get and apply it instead against your outstanding obligation.
As if that’s not bad enough, here’s something else that might seem even more galling.
Even though you personally might not have any such debts outstanding, if your spouse does – and the two of you filed a joint income tax return – your refund check could still be tapped to satisfy your husband or wife’s debts. If that happens, and you’re not legally responsible for your spouse’s debts, you might be able to get a portion of the refund check doled out to you by filling out IRS Form 8379 and claiming injured spouse relief. But good luck proving your claim to the Tax Man. And even if you are successful, don’t expect that partial refund check to be quickly sent to you either.
2. Other fees could bite into your tax refund.
Be honest: Have you ever used a “rapid refund” service or taken out one of those “rapid anticipation loans” to get your tax refund check faster? If so, you probably paid high fees for the privilege of getting that cash quickly. Experts say the price tag for fast tax-refund loans rival payday loans, and can run as much as 250% in interest or more.
This one really baffles me. But it happens year in and year out. During tax season – starting in January when the W-2’s start rolling in and right up until the mid April tax-filing deadline – some people get a sense of urgency about getting their money back from the government. Mind you, these are the very same people who had no problem letting the feds hold their money all year long.
But now, all of a sudden, many people expecting a large refund will pay steep fees to rapid refund services and rapid anticipation loan providers just to get a refund check a few days faster. Electronic filing is free and easy with the IRS, and e-filing using direct deposit already gets you a refund check very quickly, typically in 8 to 10 days. But impatience, financial imprudence – and I suppose, economic desperation – drive some tax payers to unnecessarily fork over even more of their hard-earned money just to more quickly get their hands on a refund check.