From a purely financial perspective, there’s no doubt that it’s better to maximize income tax withholding exemptions on your W-4 form because the resulting additional take-home pay can be invested or placed in an interest-bearing savings account. After all, the alternative is to give the government an interest-free loan every year. Even so, I still prefer to get an annual tax refund — mainly because the guaranteed lump sum windfall makes planning easier.
The bottom line: Any potential monetary gain I’m forfeiting by over-withholding my income is essentially too small to worry about — so I don’t. Unless your refunds are enormous, neither should you.
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