Tax refund debate: Is it better for your wallet to get a tax refund or nothing at all?


The biggest tax code overhaul in decades has made sport of tracking this year’s average tax refund size. (Currently, this year’s refund is $22 higher versus last year.)

The scrutiny is also reviving any even older and highly emotional debate over the financial soundness of getting a refund at all.

While financial experts say it’s smarter to receive bigger paychecks during the year rather than a refund, that’s not what most Americans do. About seven in 10 typically get a refund, which may help sustain the financially flawed practice.

“The ubiquity of it disqualifies the logical reason to not do it,” says Kit Yarrow, a consumer psychologist and professor emerita at Golden Gate University. “It doesn’t feel like a mistake if everyone is doing it.”

But there are other deep-seated – and not necessarily irrational – reasons why people choose refunds over larger paychecks. There’s also just as much passion from the minority of taxpayers who prefer to zero out their taxes.

Here are their takes.

The new “Christmas Club”
Donna Batton, a retired grandmother and widow, uses her tax refund to replenish the money she took out of her savings to pay for Christmas gifts. Her strategy echoes long-ago service banks offered called Christmas clubs, says Hal Arkes, an emeritus professor of psychology at Ohio State University.

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Banks would sequester a small sum each month from a customer’s account into a non-interest bearing one that couldn’t be tapped until November. “Without this, they would spend money throughout the year,” says Arkes. “Because they didn’t have the self-control.”

Batton – who remembers Christmas clubs – relates to this. She realizes she could get larger pension and Social Security checks and squirrel that money away each month for the holidays.

“But I never seem to be able to do that,” says the 76-year-old, who habitually gets refunds. “I live paycheck to paycheck. At the end of the month, it gets hard and things come up that you’re not prepared for.”

She’s also not missing out on much, she reasons. Her tax refund this year was $683. If she had deposited $57 a month last year into a savings account – and received 2 percent in a high-yielding online account – she would have made $8 in interest...Read more>>