Don't Mess With Taxes

OK, a tax refund is not nearly as big as today's Mega Millions lottery payout, which has now grown to $640 million.

But getting some tax cash back from Uncle Sam is a welcome annual ritual for many folks.

Yes, the standard spiel now, which I've given myself over the years, is that you should adjust your withholding so you don't give the federal government a year-long interest free loan of your money.

The reality is, though, that a whole lot of people like to use over-withholding as a forced savings account.

And with interest rates so low on low-risk savings options such as certificates of deposit, they're not missing out on much by waiting until tax filing time to get their money.

As I mentioned a couple of weeks ago, the Internal Revenue Service hasn't been issuing weekly updates this filing season of how things are going since they haven't been going so well.

However, at a recent hearing before the Ways and Means Oversight Subcommittee, IRS Commissioner Douglas Shulman did provide some statistics as of March 10:

• The IRS had received more than 70.7 million individual returns.
• Overall individual filing was up nearly 5 percent compared to the same time period last year.
• More than 25.6 million taxpayers had prepared their own e-filed return, an 11 percentage point increase over the same time period last year.
• Around 59.2 million refunds worth $174.4 billion had been issued, compared to 59 million refunds for a total of $178.3 billion over the same time period in 2011.
• The IRS had directly deposited 46.2 million refunds to taxpayers, compared to 45.3 million last year, a 2 percent increase.
• The average dollar refund so far in 2012 is approximately $3,000, about the same as last year.

Plans for tax refunds: OK, so folks are getting a refund check of around three grand. Not too shabby.

What are they going to do with your tax refund?

Capital One Bank's annual Taxes and Savings Survey found that for the second year in a row, a third (33 percent) of Americans plan to spend all or part of their refund.

For those planning to spend their tax cash, everyday expenses topped the shopping list:

• Everyday expenses, 28 percent;
• Major purchases (e.g. autos, appliances, etc.), 9 percent;
• Vacation, 8 percent;
• New clothing and accessories, 6 percent; or
• Electronics (e.g. iPad, TV, smartphone, etc.), 5 percent.

More than a quarter of respondents, 27 percent, said they plan to save at least part of the money they get back from Uncle Sam. Another 17 percent intend to pay down debt. And 5 percent said they will invest their tax refunds.

However, almost seven in ten, 69 percent, of Americans said they don't calculate their tax refund or tax payment into their annual budget.

"A tax refund is often seen as free money, which makes it very tempting to spend it right away," said Mickey Konson, managing vice president for retail banking at Capital One Bank. "But it's important to remember that the refund you're getting back is your own money. Tax season is a good opportunity for people to plan ahead, with an eye toward their future goals and financial health."

Did or will you get a refund? If so, what are your plans for your tax money?

Tax refund image by deeAuvil/iStock

You also might find these items of interest:

• Tax refund spending tips, withholding effects
• 4 ways to receive your tax refund
• When to expect your refund