Better to get a tax refund or send a check? Shutdown may change that calculation for some

FROM YAHOO FINANCE

Two things happened at approximately the same time in 2019: Uncertainty about timely tax refunds, and the first-ever returns under the new tax law.

When they file their returns for tax year 2018, Americans will find out exactly what the tax bill means to them, and whether their withholding was not enough or too much. This means taxpayers will get a crucial data point they can use to pinpoint the correct withholding amount going forward.

With this opportunity for people to evaluate their withholding, they may also reevaluate their own trust that the money they may have loaned the government will be returned in a timely fashion.

The Trump administration said that the IRS will pay tax refunds on time – despite the agency being subject to the current partial government shutdown. But the addition of “uncertainty involving IRS’s processing abilities” may be a big negative on the pro/con chart of whether to withhold more or less going forward — especially in this partisan climate ripe with shutdown potential.

There has long been a debate in the personal finance community to receiving a tax refund.

To some, the more than 50% of taxpayers who get refunds have “given the government a free loan” all year, and that potentially sizable amount of money could have been earning you more money or be put to use paying down debt. And surveys show many people receiving a large refund check end up spending it all in one place as unexpected disposable income — rather than a savings opportunity.

Not everyone agrees. Many say it’s better to play it safe and err on the side of having your employer withhold more than required so you aren’t on the hook for a big fat check to Uncle Sam. And instead, you’ll get a refund.

And the behavioral finance play goes the other way as well: You loan the government money during the year through your withholding so you can’t spend it. And then you get a surprise check come tax time.

It’s hard to say what’s “better,” and it probably doesn’t make that much of a difference, so long as you don’t have to pay a penalty for underpaying your taxes. Consult a tax pro if you’re not sure.

But amidst the government shutdown over border wall funding, the question of whether the IRS would actually issue refunds on time emerged, especially if the shutdown continues into tax season.

 However, the possibility that an underfunded and half-open IRS would have trouble could be something that may change how people think about their withholding going forward.