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Home » Taxes

Only You Can Prevent Tax Refund Windfall Syndrome

Last updated by on February 1, 2016

As the April tax deadline approached, I picked up on a re-birth of a certain sentiment that goes a little something like this “I can’t wait to get that refund so I can spend it on ___________”.

Maybe it’s the true sign of economic recovery – unashamed consumer wastefulness – rearing its ugly head after a 4-year absence.

I’ll assign it a medical diagnosis term: Tax Refund Windfall Syndrome, or TRWS for short (coining it).

Over the last month or so, I must have heard at least a dozen or so people make some sort of proclamation or “bragadation” about how they are going to piss away the huge tax refund they are about to get, as if it were some sort of unexpected windfall received from a wealthy step-Uncle they never knew or money they’ve swindled from Uncle Sam.

tax refundI’ve heard of wastefully ambitious goals of kitchen remodels, leasing a new car, a cruise, and a new TV.

Now, I could play Debbie Downer and call these people out to their face for not being clever in wasting money that was already theirs to begin with. But, I still try to maintain some sort of semblance of what some may deem as a “social life” with others.

So, I sit there and smile and nod my head. Deep inside, particularly because I’m a personal finance blogger, I’m dying. Life force is being sucked from my soul as I stand witness to a manifestation of a misinformed cliche.

So let’s end it right now – a tax refund is not a gift or windfall.

85% of Americans are expecting a tax refund this year. Most are anxiously awaiting that refund. But all getting a refund means is that the recipient was on the wrong side of the tax payment see-saw. On the other side is Uncle Sam, and he’s laughing, because he just borrowed money (in the form of tax over-payments) interest-free over the course of the previous year. A refund is no gift. No windfall. No reward. And it definitely does not warrant bragging rights.

That refund money could have been better used over the year to avoid or pay off high-interest debt, to earn a 401K match, or at least earn a percent or two in a bank CD. Instead, the government used it, $230 billion of it, and the recipient actually lost money through missed opportunity costs.

Giving this message here and now, to the masses of readers here, who I am hoping share with their social network in order to earn back their own life force (use me as bad-cop) – is my way of keeping my soul alive.

If you happen to be one of those who have treated your refund as Monopoly play-time money, I don’t mean to insult or make you feel dumb. But I absolutely want to squash whatever misinformed tax windfall meme you’ve been fed by the media or wasteful peers. I want to save you.

And, I want to offer a chance at redemption through the following 4 steps:

tax refund check

These two? Beyond saving.

  1. Acknowledge that your tax refund is your hard-earned money and should be treated as such.
  2. Congratulate yourself for surviving the year with additional funds that you did not budget in. You’re a true survivor! Now take those extra funds and pay off some debt, save for retirement, and maybe even treat yourself to a few quality brews as a reward for good behavior.
  3. Change your withholding tax allowances, with the goal of breaking even or owning a tiny amount on next year’s tax return.
  4. Smile and nod when others proclaim their intended wastefulness, but don’t congratulate them. And don’t give in to the urge to re-join that bandwagon.

Only you can prevent Tax Refund Windfall Syndrome.

Tax Refund Windfall Syndrome Discussion:

  • Have you ever had a case of Tax Refund Windfall Syndrome? When did you realize it, and how did you cure it?
  • What’s the worst case of TRWS you’ve encountered? What did you do or say?

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About the Author
I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 10,000+ others by getting FREE email updates. You can also explore every post I have written, in order.

  • Jake Erickson says:

    This is great! I’ve totally seen a lot of TRWS before and I shake my head every time. I don’t think the general population understands that a refund means that you just gave the government an interest free loan for the year. I would rather get back $100 than owe $3,000 (even though in the end it’s the same), but I wouldn’t be happy with getting back $3,000 at the end of the year.

    I have “almost” had TRWS when I got back $4,000 because it was such a large amount and could buy something really nice, but I caught myself before actually spending the money. The reason I didn’t is because I realized how much this $4,000 would help with my current financial goals (paying off debt) and that benefit outweighed the benefit of having another material item.

  • Honey says:

    I like the forced savings aspect, and I think that if people want to use their withholdings to create a forced savings for something they probably wouldn’t otherwise be able to save up for throughout the year, more power to ’em.

    Our 65″ TV was purchased I think 3 or 4 years ago with a tax refund and it is the most-used, most-loved thing in our house (except the cats).

    That said, my husband and I owed this year, mostly because he started his own business and didn’t withhold enough. I would like to shoot for a refund next year though I doubt that will ever happen again. Which bums me out!

  • Emily @ evolvingPF says:

    We owed a small amount to the feds (< $100) and are getting a small refund from our state (about $200) – I don't think we could do any better! I don't think people in my life get big tax refunds, or at least I've never seen them be blown on anything obvious. We're putting our tiny refund in our Travel savings account, which is the same place all our budget leftovers go after we zero out our checking account monthly, so I think it nets to no difference for us!

  • Drake says:

    I upped my deductions in August when we had a baby and my wife stopped working. We still ended up with a huge refund. We also had a big refund last year which is still sitting in savings.

    I’m fairly disciplined with money, pay off all my CC’s every month, try to pay additional principle on my mortgage, contribute to my 401k to get the max employer match, monthly budgeting etc – yet I’m still leery of upping my withholdings. I’m just worried I won’t see the savings or won’t be as disciplined with monthly budgeting.

    All of my significant refunds the last 4 years – I’m always sat on, 2 years worth ended up going toward my 20% home downpayment and last years is still sitting in savings/mutual funds.

    I think for sure I will look toward withholding a little bit more to contribute to retirement accounts, maybe a travel fund, but I’m leery of striving for that break even point talked about in this post.

  • Pickle says:

    Personally, I enjoy receiving a refund each year. While my wife and I save every month, our tax refund each is a sort of forced savings for us. That money either goes directly in to savings or goes towards a goal that we specifically budgeted it for. This year, for example, our refund was put directly in to savings, with the knowledge that it would be used to purchase furniture once we move from our 1 bed/1 bath apartment next month. We knew that we would be getting the refund, so we were able to use that extra money last year to help pay down debt.

    I’m sure this isn’t what most finance bloggers recommend, but it’s the strategy that has worked the best for us.

  • Dustin says:

    “I’ve heard of wastefully ambitious goals of kitchen remodels, leasing a new car, a cruise, and a new TV.”

    I contribute 9% to a Roth 401(k), 2% to a Roth IRA, 2% to whole life insurance, and 6% to a money market (which doubles as my savings). That is 19% of my income that goes straight to savings every single month. I could easily have spent that on trips of a lifetime, adventures, personal items, gifts for my wife, etc. Instead, I saved it all.

    My wife and I’s refund of $3,099 is being spent on:
    – 7 day southern carribean cruise
    – re-finishing my deck for summer bbq’s and entertaining guests
    – new tile flooring in our kitchen

    It is one thing to be frugal…it is an entirely different thing to be a tight ass. I’m living my life by spending a portion of the money I earned.

    Sure, I’m adjusting my withholdings for next year but you truley seem to believe money is evil. I feel bad for you.

    • G.E. Miller says:

      Now, now, Dustin. Just because one of the things I randomly pulled from the air as being wasteful happens to be something you are doing and you are spending your entire refund, does not mean this post was written to criticize you.

      Every now and then someone like you takes offense to my critique on consumerism and says I must be a miserable human being because I don’t spend lots of money. I don’t know if it’s guilt or what, never quite figured it out. This is a personal finance blog, after all. And I do treat myself. I have everything I need and more, on less than $20k per year. And the smell of financial independence is getting stronger. It’s a faint smell, but getting stronger by the week. Money used to free one up to pursue whatever passion makes them the most productive member of society possible? That’s beautiful, not evil. No need to call names. And please, do not feel bad for me.

  • William @ Bite the Bullet says:

    TRWS – Tax Refund Windfall Syndrome, now I have an official acronym for my affliction – awesome! 🙂

    I’m a total fan of TRWS, because it costs next to nothing (we have no debt, else that would have taken preference) and it adds a cheap thrill every year: how much we gonna get this time? We used to max out our withholdings to make sure we got a refund, after one single year we had to pay a 10% penalty because we sailed too close to the wind and had about $100 or so too little withheld. In risk/return terms, TRWS is a no-brainer IMHO.

    We’ve always used the money to fund the “annual projects,” such as house painting, fence replacement, and other assorted joys of home ownership. One year it gave us enough to install AC. (Every summer since then, I’ve been very happy about that.)

    Oh, and now we have real motivation to get our taxes done as early as possible every year.

  • alicia says:

    Most people would blow through their money each month if they weren’t using the tax witholding as a forced savings account. (like ME!) In general, I don’t believe most people have the discipline that a financial planner would, so I do think most could benefit from the “interest free loan” given to the government. While it is interest free, most savings accounts earn very little over the course of the year. I’ve calculated what I would make, and it is not much. Investing the money would be a great option, but that is very difficult for some people to do, especially if they don’t have the time and discipline. On the other hand, HOW one uses this refund makes all the difference. Paying off debt is ALL I do with my refunds.

  • alicia says:

    P.S. what is your take on deferred compensation plans? Good or bad idea? I get a pension, but want something to supplement it.

  • slinky says:

    I make it a point to always know where any extra money is going. Sometimes its whatever goal I’m working on, sometimes its something needed that I’m having trouble fitting into the budget, and sometims, if times are good, its something fun. Whatever it is, that’s where extra money goes whether its a few hundred dollar tax refund or an unexpected bonus or an extra $20 i found in the budget at the end of the month. This year, it was a lawn tractor for our new house on two acres.


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