I have a couple of friends who loathe the idea of receiving a refund.  I thought they were crazy when I heard them talk about their desire to structure their taxes in a way where they wouldn’t receive a tax refund.  They believed that a tax refund was a big waste and meant they failed in properly setting up their taxes at the beginning of the year. To them, a tax refund wasn’t something to be excited about, but rather a signal to do something different the following year.  This was totally different than my approach.

Unlike my friends, I eagerly awaited the news of how much I will receive back in taxes.  My mind drifted off to all of the amazing things I would do with my money (by the way, last week I shared 10 Smart and Quick Ways To Spend Your Tax Refund Wisely). However, one day my friends shared something with me that fundamentally impacted how I viewed a tax refund.  

One day we were randomly talking about taxes and withholdings (money withheld from your earnings by your employer and paid directly to the government).  My friends then shared that they kept more money in their paycheck throughout the year instead of receiving a tax refund.  That’s when they asked me, “Did you know that a tax refund is just an interest-free loan to the government? It’s not free money. It’s your money that you generously allowed the government to use without receiving anything in return.  Even if you put it in the bank you could have gotten a little something instead of the nothing you did get.”

That conversation totally opened my eyes, because I thought a tax refund was free money. That’s when my mindset began to shift about what a tax refund truly is and whether I needed to do something a little differently to keep more of my money throughout the year.

In this post, I’m going to share 2 guiding questions to help you to decide whether you should adjust your tax withholdings to keep more of your money throughout the year or to leave them alone and continue to receive a refund.  Please keep in mind that I am not an accountant, so do not take this as tax advice. I encourage you to speak to a tax expert to determine what will work best for you.

Guiding Question #1:  If I adjust my withholdings to increase my paycheck throughout the year and reduce my tax refund, will I be able to save or contribute towards my financial goals?  

This question is so crucial because one of the major benefits of tax refund time is having a windfall to apply towards your financial goals and to catch up on things that may have been left behind throughout the year.  I’ve always used tax refund time to build savings, repay debt, and do something fun. I considered my friends’ advice and decided that adjusting my withholdings wouldn’t work in my case.

I understood that I was getting a horrible return (i.e. nothing) on that loan to the government, but there was something else that was a bigger factor in my decision.  I know myself and I know my spending habits and I had to set up systems to help prevent me from impulse spending or spending it on food. I faithfully funneled money away towards my financial goals, because most of them were automatically paid, but there were times when I decided, “just this one time” I would use money allocated towards a goal for something that had nothing to do with it.  Sometimes that 1 time became 2 or 3 times and I would find myself in a position where I needed to play catch up. Therefore, for me, that tax refund became forced savings that allowed me to be disciplined with what I planned to do in advance. I knew that if I planned how I would spend the refund, then 100% of it would go where I wanted it to go and I would see more progress in my goals.

However, I recognize that my story is just that – my story, and what would work for you may be different.  You may find that you may have better success contributing towards your goals if you work on them diligently throughout the year instead of all at once at tax refund time.  Therefore, think about how and why you spend, how disciplined you are, and then determine what will make the most sense for you.

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Guiding Question #2:  Am I struggling to pay my monthly bills?

If you find yourself falling behind on your bills throughout the year and you are using tax refund time to catch up on your bills, then you may be better off adjusting your withholdings to allow yourself to have more money and cushion and breathing room throughout the year.  Turbo Tax has a great post about the annual value of each withholding. You can see the post here.  

Adjusting your withholdings could give you the opportunity to have more money each month which could help you eliminate late fees, additional interest payments, or even shut off notices.  Just think about how much you would save!

So now that you know what a refund is and the 2 guiding questions to evaluate whether you are better off getting your money upfront, I encourage you to head over to the post, “10 Smart and Quick Ways To Spend Your Tax Refund Wisely.”  The 10 strategies in that post are a great resource to help you to determine which goals you want to work towards throughout the year.  Once you locate the goals that will bring you the best value, then start working to accomplish these goals.

If you decide to or are considering moving forward with adjusting your withholdings to keep more money throughout the year, then:

  • Contact your Human Resources Department to learn how to adjust your withholdings.  For example, you may need to do it on a form or they may allow you to do it online.  Different companies have different policies, processes, and procedures, so you need to figure out how your job handles these requests.  
  • Ask Human Resources if they can provide support about how to calculate your new withholding number or if they have an outside resource that can provide assistance for free.
  • Check out the IRS Withholding Calculator to help you to guide your decision to see how many withholdings you need to either have no tax refund or to reduce the one you receive.  This will also help you to understand how much you will be able to keep each month because it is no longer being held each month by the government.  If you have questions about how to use the tool, then check out this Q&A site from the IRS to assist.
  • Contact a tax professional, the IRS, or someone who is certified to give tax advice to verify that you did everything correctly so you don’t end up owing at the end of the year.

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Once you adjust your withholdings, now go back and review your budget (and if you don’t have one then now is a great time to do it).  Adjusting your budget is foundational. This will allow you to direct the money where you want it to go.  This will help you have success at this strategy and not end up in a position where you kept the money but spent it on things that don’t bring you closer towards your goals.

I’m not here to tell you what to do but to inform you and help you make a decision about whether to get the money now or throughout the year.  Remember, I decided not to adopt this strategy because I know my spending habits, but I wanted to share it with you anyway because I personally know a number of people who have adopted this strategy and they have successfully allowed their money to work way better for them through investing, saving (and earning interest), making more on-time bill payments, starting businesses, paying off debt (and saving the interest rates), or having more money left for them and their children to do something that brings them joy.  I hope that whatever you decide brings you peace.

About Aisha

Aisha Taylor of FNPhenomenal

Aisha Taylor is a single mom of twins, personal financial coach, work from home entrepreneur, and #1 Amazon Best Selling Author of the book “5+5 FNPhenomenal Ways to Save $100 This Week Without Killing Your Lifestyle.” Aisha has been featured in ESSENCE, Jet Magazine, and Black Enterprise. She is also the Founder of FNPhenomenal (Frugal –n- Phenomenal), a movement designed to help single moms create a vision for their lives, craft a financial strategy to support that vision, and show them that phenomenal living is possible. It’s time for you to be Financially Phenomenal!


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I’m excited to work with Ellevest to start this conversation about women and money. I may receive compensation if you become an Ellevest client.

Wish you had more money in your paycheck? In this post, you will learn how to increase your monthly income by changing your tax withholdings.