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Smaller tax refunds are not necessarily bad

Was your refund smaller than last year?

Feb. 19, 2019

It's early in the tax season, but so far, the average tax refund is smaller than last year – about 8.4 percent less, according to the IRS – which is coming as a big surprise to a lot of people.

But that's not the entire story.

"A smaller tax refund doesn't mean that you paid more in taxes this year," said

Greg McBride, chief financial analyst at Bankrate.com. "The withholding tables were adjusted, so the reality is you got a lot of that refund sprinkled throughout 2018 on all of your pay checks."

McBride reminds us that withholding too much in order to get a big refund is not good financial planning.

"Ideally, you don't want to get a big refund because you've given an interest-free loan to the government. You'd either like to get a small refund or even pay a small amount and instead get your money throughout the year with each and every pay check."

Maybe you feel you need a big refund because you'd fritter that money away during the year, if it were part of your paycheck. In that case, be sure to put that refund to good use.

"Use that windfall to pay down debt, to boost your savings or to make a retirement contribution," he said.

More Info: 9 Smart Ways to Spend Your Tax Refund

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