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Most Americans Expect a Tax Refund in 2018 -- and That's Not a Good Thing

By Maurie Backman - Updated Dec 11, 2017 at 3:38PM

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You might think getting a tax refund is something to celebrate. But actually, those who get refunds tend to lose out.

If there's one thing pretty much all Americans can agree on, it's that taxes are a major burden. Not only does losing a portion of our income constitute a harsh blow, but the process of filing taxes can be downright stressful.

But filing hassles aside, perhaps the most significant problem with taxes is that the bulk of filers overpay them year after year. It's estimated that roughly 80% of taxpayers get some sort of refund annually, and 2017 was no exception. This year, the IRS issued over $302 billion in refunds on 2016 tax returns, at an average of $2,782 per tax filer. And 62% of taxpayers expect that come 2018, they'll receive some sort of refund on their 2017 returns.

Tax Refund Ahead diamond-shaped road sign


Of course, many feel that getting a refund is reason to celebrate. But the sooner they realize the opposite is true, the more vigilant they'll become about better estimating their tax burden.

Why you actually don't want a refund

It's natural to not want to owe money on your taxes. But countless filers each year let their fear of owing the IRS a little extra cause them to overpay. Furthermore, many filers who grow accustomed to collecting tax refunds don't take steps to adjust what they're paying during the year. The reason? They want those refunds, because they feel that it's bonus cash to spend.

But let's be clear about one thing: Your tax refund is not found money, or free money. It's actually your money -- money you earned during the year and were entitled to receive in your paychecks, but chose to lend to the government instead for absolutely nothing in return.

Did getting a tax refund cause you to go into debt?

It'd be one thing if more Americans were in a solid financial position and could afford to delay a portion of their earnings. But most people aren't in great shape moneywise. An estimated 57% of Americans have less than $1,000 in savings, which means they're nowhere close to having enough cash for a true emergency fund. And 39% of adults have no money in the bank whatsoever.

What a lot of us do have, however, is credit card debt. As my colleague Matthew Frankel reported earlier this year, the average American's total credit card debt equals roughly $5,550, but that doesn't tell the whole story. Since that figure also accounts for people who don't have any debt at all, the average household that has a credit card balance owes more like $16,000. Ouch.

Now this isn't to say that credit card debt is a symptom of overpaying taxes alone. But let's not ignore the correlation. A big reason people run balances on their credit cards is that they don't have the cash to pay their bills when they come due. However, had they collected that cash in their paychecks all along instead of letting the IRS sit on it, they perhaps could've avoided some of that accrual -- and the interest charges that came with it.

A smarter approach for 2018

It's too late to turn the clock back on 2017 and collect more money as you earned it. But what you can do going forward is take a close look at your refund history and figure why you wound up overpaying year after year. It could very well be that your W-2 form needs adjusting. Or, if you itemize on your tax return, it could be that you're misjudging the value of your various deductions.

No matter why you've been overpaying your taxes, don't make the mistake of doing so again in 2018. Having more money in your paychecks will, at the very least, buy you more flexibility, and in an even better-case scenario, offer you an opportunity to invest and generate solid returns. And that's a far better cry than giving the government a tax-free loan just for the heck of it.

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