Get a Smarter Tax Refund

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By Joan Reid, Extension Agent, Family & Consumer Sciences, Granville County

“It’s not how much you earn that counts, but how much you keep.”

Extension Agents, it goes without saying that most of us hate filing our income tax returns, but we love getting money back from the government. While you don’t want to owe income tax, too big of a refund doesn’t work to your best advantage, either. So, how can you prepare your clients to best put their tax return to work for them? This post focuses on strategies you can share with clients that will help put their tax returns to work.

Make Your Refund Work for You

The much anticipated tax refund is not a windfall, but a return of earned income, which the government has been using all year. While many families regard this refund as forced savings, it may serve you better if you were to have access to that money throughout the year. Consider reviewing your annual withholding amount. If you decide to change your with­holding rate, submit a new Form W-4 Employee’s Withholding Allowance Certificate to your em­ployer. Be sure to discuss changing the withholding rate with your spouse if you are married. Coordinate your withholding rates so you do not accidentally under-pay your taxes, which would cause your household to owe money the following year.

To make your money work for you, develop a planfor that extra money that will be in each of your paychecks. If you don’t have a savings account, open one and move a set amount into it each month. Or have automatic transfers set up from your checking account into your savings account. This is a good way to develop an emergency fund if you don’t have one.

You can get started on saving with this year’s refund. When you prepare your tax return, simply use IRS Form 8888  to divide your refund into two or more accounts or financial institutions and/or to purchase U.S. Series I Savings Bonds.

Avoid Refund Anticipation Loans

Refund Anticipation Loans (RAL) provide early access to part of the refund amount you are expecting. The com­pany offering the RAL will charge a fee for lending you part of your tax refund until the actual refund is received. You can keep more money in your pocket by avoiding rapid refund offers and choosing to electronically file (e-file) your taxes. A tax refund can be received in 10 days or less with electronic filing. This is true whether you e-file through a Volunteer Income Tax Assistance, or VITA site, a paid tax preparer, or on your own through the IRS Web site.

Many folks sign up for a RAL because they either are desperate for the cash or don’t want to delay a desired purchase. You can prepare yourself to not be in that position next year by decreasing your withholding, as discussed above, and saving that amount. Then, you can keep your whole refund and earn at least a bit of interest throughout the year. If you have enough in emergency savings, you may want to put some of those savings into an IRA or other retirement account.

H&R Block Emerald Prepaid MasterCard® 

When you have your taxes completed at a participating H&R Block tax office, you can choose to have your tax refund or refund anticipation check funds proceeds loaded onto the H&R Block Emerald Card. 

The card can be used for everyday purchases, such as bill payments and ATM withdrawals, anywhere debit MasterCard cards are accepted. You can also add money to your card any time through payroll direct deposit or at participating retail reloading locations through the Green Dot®, MoneyGram® and Western Union® networks.

Emerald Card Fees

Although there is no fee to set up the card, there are some usage fees of which to be aware. ATMs in the Allpoint network are surcharge-free. If you use a non-Allpoint ATM for any transaction, including a balance inquiry, the ATM operator may charge you a fee even if you do not complete a withdrawal, this is in addition to the fees listed below:

  • $ 2.50 –  ATM Cash Withdrawal Fee (each/per occurrence)
  • $ 1.00 –  ATM Balance Inquiry/ATM Denial Fee (each/per occurrence)
  • $25.00 – Over the Counter Withdrawal Fee (each/per occurrence)
  • $2.50/month – Monthly Inactivity Fee

Visit the website for a complete listing of fees

Volunteer Income Tax Assistance (VITA)

The VITA program offers free income tax preparation for individuals and families with incomes up to about $42,000. Look in your community to find a free VITA tax preparation site or call 1-800-829-1040.

What tax refund advice do you typically share with interested clients?

References:

Bird, Carolyn L. Getting the Most from Your Tax Refund (FCS-528-01). Raleigh: North Carolina Cooperative Extension Service, NC State University.

Bird, Carolyn L. Smart Uses for Your Tax Refund (FCS-528-02). Raleigh: North Carolina Cooperative Extension Service, NC State University. 

H&R Block Emerald Prepaid MasterCard. 

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2 Responses to “Get a Smarter Tax Refund”

  1. Making the Most of Your Tax Refund « Dollar Decisions Blog Says:

    […] As discussed in a recent post , by using direct deposit for your tax refund, you are already taking a step toward success!  Directly deposited refunds arrive faster than a mailed check. By using an IRS Form 8888, you can assign your refund to up to three different bank accounts.  So, you could send 20% of your tax refund amount to a checking account reserved for discretionary purchases, then, send the remaining amount to a retirement account or savings account. You can also use this form to purchase up to $5,000 of U.S. savings bonds to add to your retirement or education savings. Now, you are already on your way to improving your financial health in 2012! […]

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