and 3 ways to put it to good use


Tax season is coming up! The perfect moment to go through everything you should know about receiving and using your tax refund. Sure, filing your tax return is probably not your favorite task of the year, but unfortunately, it’s necessary. If you do it correctly and in due time, you can get a nice refund, which can alleviate some of the financial stress you may be experiencing right now.  

To bring you up to speed, we’ll go into why you get a tax refund, and how to make sure it’s not too high (you don’t want it to be too high–a too-high tax refund can make you lose money in the long run). After that, we’ll list all the dates and deadlines you should not miss this tax season. And if you’re wondering whether your debt is tax-deductible and how to spend your refund wisely, please read on, because we tell you exactly where to consider putting your money when your tax refund finally hits your account! Let’s dive in.

Why do I get a tax refund?

The number one reason for a tax refund is overpaying taxes. If your employer withheld too much taxes from your paycheck, the IRS has to pay you back. Your employer estimates how much tax you owe based on the information you provide through Form W-4 (the Employee’s Withholding Certificate). When the IRS checks your tax filing and they notice you’ve paid more than your actual tax liability, the IRS compensates you by refunding part of your paid taxes. How high a tax refund typically is? The average tax refund in 2023 was $2,753, with Wyoming having the highest and Maine having the lowest average return.

If your tax refund is significantly higher than this, you are potentially having way too much tax withheld from your paycheck. While getting a big tax refund might be a nice surprise, it’s not necessarily good, especially if you have debt. Why? On the money the IRS holds on to and returns to you, you don’t get any interest. Do you remember the last time the government gave you a tax free loan? Me neither. You could have used this extra income, which you’re now getting back through your tax refund, to pay off a portion of your high-interest debt or use it to prevent going into debt in the first place. If you have significant debt, the interest charges you’ve paid in 2023 may be even higher than the tax refund you’re receiving. Make sure you’re not having too much of your income withheld while receiving your paycheck, so you can use that income right away, instead of having to wait for it for a full year.

How to make sure you don’t pay too much income tax

If you want to make sure that you’re not having too much tax withheld from your paycheck, make it a priority to provide your employer with all the right information about your life. Whenever you start a new job, you have to fill out Form W-4, which your employer needs to determine your federal income tax withholding. If anything significant happens in your life, think of a new baby, a divorce, or a marriage, you must update your W-4! These life changes impact your taxes significantly, and your employer needs the right information to calculate the amount of taxes to withhold accurately.

Important tax deadlines and dates for your 2023 tax filing

Now, we want to go through the key dates and deadlines for the 2023 tax season, so you don’t miss any important ones. The official start of the 2023 tax season is on January 29, since this is the day the IRS starts accepting and processing 2023 tax returns. Note that they will start with the e-filed returns. If you want your filing to be handled first and you’re comfortable filing your tax return on your own, fill in the free e-form on their website.

While you can file your taxes starting January 29, you probably need your W-2 form for this. The deadline for your employer to send you your W-2 form is the 31st of January, so it may be that you have to wait a day or two before you can start filing your taxes. The deadline for them to send you your W-2 form is no later than January 31 for you to have plenty of time to file your taxes. If you haven’t received your W-2 by January 31, please contact your employer, as they’re legally obligated to send you this information.

Then, on April 15th, it’s tax day. This is the last day you can file your taxes on time. Missing this deadline may result in penalties and interest, so make sure you do it on time. For individual income tax filers, the 15th of April marks the final day to contribute to an IRA or HSA in the 2023 tax year. You cannot make any contributions for the previous tax year after this date. If you still want to contribute to your IRA or HSA in 2023, make sure to do it before this date!

If by April 15 you’re not ready to file your taxes, this is also the last day to file Form 4868, which is used to request an extension to file your individual income tax return. If your extension is granted, the new deadline for filing your 2023 tax return is October 15

When do I get my tax refund?

You can expect to get your tax refund in 21 calendar days if you file your tax return online. If you file it through mail or any other way than electronically, it can take up to 4 weeks before you get your tax refund.

If you’ve claimed the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC), it may take up to 28 calendar days for your refund to hit your account. The IRS has special processes to go through EITC and ACTC claims, hence refunds for these credits take a little bit longer.

And if you’re curious about the status of your refund, you can check through the website of IRS, via the page “Where’s My Refund?”.

Is my debt tax-deductible?

Personal debt, such as medical debt or credit card debt cannot help you lower your taxable income. However, some types of loans are tax-deductible. For individuals, interest paid on mortgage loans and student loans is tax deductible, effectively reducing your taxable income for that year. However, there are some rules to this game.

For the mortgage loan tax deduction, you have to be able to prove that this loan was used to fund the purchase of your primary residence. And interest paid on your student loans is tax-deductible, but only if your income is below a certain level. If your income is below $85,000 (or $175,000 if you’re filing a joint return), you can lower your taxable income with the amount of interest you’ve paid on your student loans, with a maximum deduction of $2,500.

Also note that your student loan has to be “qualified”, which means that you’ve used the funds to pay for qualified higher education. An educational institution (any college, university, vocational school, or graduate school) is “qualified” if it participates in the financial aid program administered by the U.S. Department of Education. You can check the full list of participating educational institutions here

Put your tax refund to good use!

Now that you know everything about the filing part of your taxes, let’s move on to the fun part: your refund hitting your account. However, while using your tax refund to treat yourself on a new television or a nice getaway with the family may be tempting, consider using your tax refund more productively. Putting it to good use can massively help you in the long run, and to help you with this we want to go through three smart destinations for your tax refund.

#1 – Pay off debt – If you have any high-interest debt, such as credit card debt, your number one priority should be to pay off this debt. Putting your tax refund to good use and using it to pay off any debt you may have can save you hundreds or even thousands of dollars on interest payments. Receiving your tax refund and using it to pay off your debt can help you get rid of your debt faster, freeing up money to save for retirement or invest in a better future.

#2 – Give your emergency fund a boost – If you do not have any debt that needs paying down, but don’t have any significant savings dedicated to unexpected events that may happen in your life, put your tax refund to build up an emergency fund. Having a robust emergency fund consisting of 3 to 6 months of expenses provides you with a financial safety net in times of emergency.

Think of something like a sudden leak in your house, a medical issue or your car breaking down. All unexpected events that need immediate fixing and are usually pretty costly. Something like this can throw you into debt pretty quickly if you don’t have any savings for that. Building up an emergency fund helps you avoid having to accumulate any high-interest debt in case of an emergency. Plus it gives you peace of mind by knowing that you have money for when something unexpected happens.

#3 – Invest for the future – When your debt is paid off and you have a solid emergency fund, the next best thing to do with your tax refund is to invest it for the future. Consider contributing your tax refund to a retirement account like a 401(k) or Roth IRA. Putting this money into a retirement account can save you a significant amount in taxes whenever you pull your money out.

It may even be that you’re well on your way to maxing out your 401(k) or Roth IRA. What you can do then is invest your tax refund in the stock market by buying well-balanced index funds. The earlier you invest, the more time your money has to compound, helping you build wealth for the future.

Are you still struggling to make a plan to pay off your debt? Or maybe your financial situation is looking bright already, but you don’t know how to get started investing in index funds. If you feel you can use some guidance on your journey to bulletproof your finances, we happily invite you to the free live webinar hosted by Marc Russell, a retired financial advisor. In this free webinar, he will go through 3 powerful ways to bulletproof your finances and start investing in index funds. Over the course of a week, you’ll have three time slots to choose from, so everyone can join. Having no time is not an excuse anymore! Check the time slots by clicking here

Let’s work toward a financially secure future

As we’ve said earlier, filing your tax return is probably not your favorite task of the year. Believe us, it’s not ours either. After reading this article you’ll hopefully know exactly why it’s necessary to go about this diligently, how to make sure your refund is not too high, and how to use your refund as efficiently as possible.  

First, we went over how a tax refund works. Remember that you want to notify your employer whenever something significant changes in your life, as this might affect the amount of taxes you have to pay. You do not want to have too much tax withheld from your paycheck, as you can use this extra income to avoid additional interest charges on your debt or use it to invest in index funds and get a nice return. 

And another thing to remember, please don’t forget to file your return by April 15. Not filing your taxes (or Form 4868 to request an extension) before this date will result in penalties and interest charges, which is an easily avoidable waste of your hard-earned money.

When your tax refund finally hits your account, put it to good use. Use it to pay off any high-interest debt, build up your emergency fund, or invest it in index funds. Let’s work towards a financially secure future together!



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