Do you have a habit of lending money to strangers and coming back later to get it back without looking for something in return? I don’t know about you, but this is not a practice of mine. I haven’t given money to anybody under those conditions except for very close family members. This article is about how we, the general public, are losing millions of dollars per year because we fill out our payroll documents incorrectly.
How many people do you know, and I’m sure that there are lots of them because I know plenty of them myself, who can’t wait until they get their tax refund check? What about people who brag about how much money they expect to get back from Uncle Sam? I have even heard that some people will pay a fee to borrow against their own tax refund so that they can have quicker access to the money. Although I think this is unwise to do, there are more people who are doing this than you think.
If you are one of the millions of people who gets a tax refund each year, I’m sure that you are extremely happy when the check arrives in the mail. Trust me, I know that feeling very well. However, as I’ve got older and have a better understanding of how the payroll deductions process works, I learned that it’s a lot different from what I thought it was. Now that I’m more informed of the tax deduction rules, I would like to share this enlightening information with you.
Despite popular belief, I know today that receiving a tax refund check means I selected the wrong exemption status on my W2 forms. If I had selected the right status, I would take more money home each paycheck throughout the year. I believe we’ve selected the wrong exemption status because when we were hired, many of us filled out those W2 forms as soon as possible, as we were just glad we got a job. In our haste to get to work, we may have made an incorrect declaration on these forms that has permitted our employer to take more money from our paycheck than it is necessary.
Did you know that your tax refund actually represents a “free loan” that you have given to the government? We may not think about it that way, but when your funds are being held for a certain period and later given back to you, this is the definition of a loan. I call a tax refund a “free loan” to Uncle Sam because it’s your money that you are getting back per year, but you are not receiving any financial benefit in exchange for letting him hold your money.
To stop this “free loan” from occurring, make an appointment to speak with someone in your Human Resources department and they will work with you to revise your exemption status on your W2 form. In today’s technologically-advanced society, most firms allow you to update this form online yourself so it’s not a difficult task to complete. However, once you have updated this form, you will start receiving more money in your paycheck, so don’t think that you are receiving a raise.
Once you start receiving these extra funds, it is imperative that you use these funds wisely by paying down your debt or starting a savings program where you can collect some interest from the bank. If you don’t use this extra money wisely throughout the year, you will be terribly angry at yourself at the end of the year when you will no longer get a tax refund like you did in the past.
I must also point out that although I don’t agree with this practice, there are some people who purposely fill out their W2 form so that more money will be taken out of their paycheck. They do so as a way of forcing themselves to save money for next year. I understand this inclination, but if you make smarter choices with your money throughout the year, you’ll be in a better place than if you wait once a year for a big check. Also, becoming a saver is a learned activity that must be practiced often. Managing your money correctly every month will give you the discipline needed to build true wealth.
There is another reason why I steer people against giving Uncle Sam a “free loan” is that you’re treating Uncle Sam better than he treats you. If you should owe Uncle Sam money for any reason, he will come after you with guns blazing speed and will not let up until you have paid him. He also will charge you an extraordinarily high interest rate while chasing you down until the debt is paid. Since Uncle Sam is not giving you a free pass when you owe him, maybe we need to reconsider why we are allowing him to take our money and hold it without giving us something in return.
In closing, in my opinion, it is always better to get the money due to you upfront so you can use it the way that is best for you. The examples that I have provided above are good starts on how to use this new found money in your check. The other option of waiting to get your money back in your annual tax refund is allowing Uncle Sam to get a “free loan”. Although I understand why people do it, I strongly suggest against it. I don’t know about you, but I would rather have my money throughout the year so that I can earn some interest on it instead of allowing the U.S. government to hold these funds free of charge. Now that you are aware of this information, what are you going to do about it?
I’d love to hear your thoughts. Share your comments below.