3 Reasons a Big Tax Refund Can Actually Be a Good Thing

Most people don't love filing taxes, but lots of people love getting a tax refund! The average IRS tax refund for 2024 is $3,011 (as of April 15 data). For many Americans, a tax refund feels like a happy surprise -- "free money" from the government.

Unfortunately, there are some stern, grim, joyless accounting nerds who would be eager to tell you that "getting a tax refund is bad, actually." And on the one hand, yes, it's technically correct to say that your tax refund is a sign you've overpaid your taxes throughout the year. Getting a tax refund means that you gave a months-long interest-free loan to the government. Ideally, you could've used that money for other financial goals throughout the year.

But on the other hand...meh. If people believe that their tax refund is a good thing, and it makes them happy, and it helps them feel some hard-won financial security, I'm not going to tell them they're wrong.

Here are a few reasons why getting a tax refund is a good thing for millions of Americans.

1. Tax refunds give you "forced savings"

Many Americans don't have $500 for an emergency, and the typical American savings account balance is only $1,200. This means that for many people, getting a $3,011 tax refund is the equivalent of almost tripling their savings account balance, all in one day. Getting a tax refund is like an extra emergency savings fund that many Americans build up with every paycheck, without trying or even fully realizing it.

Sure, instead of giving that $3,011 interest-free loan to the government (and then getting it back at tax time), you could've adjusted your tax withholdings to pay less tax on each paycheck, saved $250.92 per month ($3,011 divided by 12), and earned 5% APY from one of the best savings accounts. But how many people actually do that?

Many people struggle to save money. They get intimidated by opening a bank account, and feel helpless to confront their budget or control their monthly spending. For many Americans, an extra $250 per month might have just disappeared into the ongoing outflow of everyday spending. Sometimes a tax refund is the best real-world solution for people to save money.

2. Tax refunds can be fun windfall money

For many Americans, a tax refund serves as a free annual windfall of "fun money" that they can use for vacations, paying off debt, or investing for the future. Many Americans make big financial plans based on their tax refund; they look forward to booking travel or paying for their children's braces or otherwise putting a dent in some big financial goals.

And tax refunds aren't always just "fun money." During the recent times of high inflation, many Americans have been feeling strapped for cash. Trustpilot survey data shows that large percentages of Americans are counting on their tax refunds as a financial lifeline for important bills and household expenses, like medical care and groceries. A $3,011 tax refund is a lot of money to most Americans, and they're right to feel happy to get it.

It annoys me when personal finance gurus cluck their tongues disapprovingly at middle-class and working-class people for daring to feel happy about their personal finances. Not everyone makes enough money to enact clever tax-planning strategies. Not everyone is a high-income professional with performance bonuses and stock options. That $3,011 tax refund might be more "free" extra money than most Americans see all year. Go out for a nice dinner! Go on vacation! Buy something nice for your kids or your pets! Splurge a little! Be joyful and abundant!

3. It feels good to not owe money to the IRS

I've had times in my life where I ended up owing more tax on April 15 than I could comfortably afford, and it was not fun to write those checks. Getting money back from the IRS after filing taxes has psychological benefits. It's a load off your shoulders, a burden off your mind. It feels like a victory.

Yes, in an ideal world, no one would get tax refunds, because everyone would calibrate their tax withholdings precisely and perfectly, and we'd all end up owing $0 to the IRS every year. But what fun would that be? We're Americans, doggone it! Beating the system (or imagining that we are) is in our national DNA!

Bottom line

If you're getting a big tax refund in 2024, don't let some Ivory Tower intellectual tell you that it's a bad thing. Yes, you might want to consider adjusting your tax withholdings so you can make more advantageous money moves throughout the year instead of giving Uncle Sam an interest-free loan. But for many Americans, tax refunds are a happy surprise, a source of forced savings, and a much-needed financial lifeline. If getting a big tax refund is the best way for your family to get an extra $3,011 (or more) of cash in the bank, there's nothing wrong with that. Keep doing it.