Tax Day 2017: A big refund isn't always a good thing

Check your withholding allowances
Posted at 10:17 AM, Apr 18, 2017
and last updated 2017-04-18 15:13:44-04

DENVER -- If you are getting a big tax refund this year, it may be tempting to celebrate and spend the money on something fun. But a tax refund isn't a bonus, it's the hard-earned money you overpaid to the government this year.

Financial experts generally agree on some smart ways to "spend" a tax refund. You can put it toward a long term or emergency savings account, you can also use it to pay off debt. 

But another question you should answer: why is your refund so big? The IRS says the average tax refund for 2016 in Colorado is $2,560. You may be allowing the government to withhold too much of your money throughout the year.

"If your tax refund is gigantic it is worthwhile to go and look at your W4 and make sure you have proper allowances filed, because it is definitely better to get more money year round than a loan to the IRS," says Denver financial literacy expert Rachel Namoff.

Getting extra money in your paycheck each week might help you budget better. It might also allow you to pay off credit card debt immediately, avoiding interest.

But if you're really bad at saving money, it may not be the worst idea to let the IRS hold it for you. The IRS can even direct deposit all or part of your refund into savings account or a retirement account.

The IRS has a withholding calculator to help you determine if you need to make any changes to your W4 form.

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