Common knowledge tells most taxpayers that if they are receiving a large refund at the end of filing season, they did not withhold enough from their paychecks and essentially provided an interest-free loan to Uncle Sam. But in some cases, there can be a benefit to receiving a tax refund - but only if it's used wisely, according to The Associated Press.

The most obvious benefit of getting money back from the government is that filers do not owe a large bill to the IRS. Individuals who find out they have a tax bill may be caught off guard and financially ill-equipped to cover their balance, which can lead to stress and penny-pinching down the road, the AP reports. Further, adults who owe a significant balance they cannot cover out-of-pocket may be forced to sign up for an installment plan or pay with a credit card, both of which may come with fees and interest.

In addition to avoiding a hefty bill from Uncle Sam, getting a refund can also help individuals improve their financial situation. The lingering effects of the recession, coupled with rising gas prices and higher living costs have created a financial strain for some Americans in many areas of their life. Tax refunds can help alleviate some of these money woes and put adults in a better position. For example, the funds may be used to pay down credit card debt, which can help individuals escape rising balances and interest charges, and devote more income to savings.

In other cases, refunds can be used to bolster regular savings or establish an emergency cash cushion to deal with sudden expenses, the AP explains. Having some sort of cash windfall can give taxpayers the financial resources they need to meet their immediate goals, whether it be a home improvement project or putting money away for college savings or retirement.

Lastly, the AP notes several changes in tax code, deductions and credits in recent years. While withholding too much from a paycheck can translate into lower take-home pay for workers, it can also help protect them when new tax changes go into effect that may raise their tax liability. By having less on hand to spend on discretionary or unnecessary purchases, consumers may be in a better position during filing season to accommodate any tax changes that would have otherwise resulted in a bill.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.

About Liberty Tax Service® 
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