A Reverse Bailout

While Uncle Sam gets all the press for its various bailouts, every year millions of taxpayers give the U.S. governmenet something of a bailout in the form of income tax overpayments.  Over 70 percent of taxpayers get refunds each year, and according to USA TODAY, this year’s refunds are averaging over $3,000.  That’s up over $250 from the average refund at this time last year.  While some of this year’s cash back can be attributed to various new tax credits, the fact is that lots of people are giving Uncle Sam a free loan each year.  While I’m a huge fan of generosity, I prefer not to donate to organizations that can literally print their own money.

If you typically get a refund of $500 or more, consider having your withholding adjusted by talking to someone in your employer’s human resources office.  You can estimate how much you should be paying in federal taxes by going to the IRS web site and searching for the withholding calculator.

If you are in line for a big refund this year, my first recommendation is to make sure your emergency fund is properly stocked.  If you have any type of debt other than a reasonable mortgage, that means having one month’s worth of essential living expenses in savings and then getting your debts wiped out.  If you don’t have debt, make sure you have six months’ worth of living expenses in savings.  People with that much money in reserve (just 18 percent of U.S. households) are the ones who weathered the recession with the least amount of financial stress.

2 Responses to A Reverse Bailout

  1. Randal Birkey March 25, 2010 at 8:25 AM #

    I’m with you 100% on: “While I’m a huge fan of generosity, I prefer not to donate to organizations that can literally print their own money”

  2. Martha March 24, 2010 at 9:07 PM #

    Thanks for this; good info to share with the grands!

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