What Every Employee Should Know About Their Tax Refund


Based on early 2019 returns, the average tax refund is $2,640, down by more than 16 percent compared with the same period for 2018. What gives, your employees might ask? This will be hard for them to swallow, but it’s actually good news.  Basically, instead of a bigger refund at the end, they have been getting more in their paycheck each week throughout the year, but not even realizing it.

As an HR professional, it can sometimes be challenging to help employees make wise choices with their money. However, tax refund time is a fantastic opportunity to approach some financial wellness issues.

First, remember that it’s important to share with your colleagues that tax refunds aren’t “free money.” While it’s exciting to receive a “windfall” in the form of a tax refund in April, that money has been held interest-free by Uncle Sam all year long.

So the first step might be to invite them to review their withholding to see if they want to make any changes. If so, they can fill out Form W-4 to make any changes—potentially having even more money in their paycheck each month.

If they’re on board, you can share some ideas of what they can then do with that money on a regular basis.

Invest in Their Retirement

If your company offers a retirement plan, like a 401(k), remind each employee to consider checking that they are making use of it—especially if you offer a company match. That’s essentially free money that your employee might be forgoing in their quest to amass a large refund.

Keep Credit Card Debt at Bay

Another byproduct of forgoing extra monthly money to try to nab that big return is that they might be accruing unnecessary interest on their credit cards. While it’s important to discuss the wise use of credit, it can be hard for employees to get out of the mindset that they can rack up their credit card bills, expecting to use that April windfall to pay them off. In the meantime, the interest they are paying means that they are really just paying their own money out of pocket to the credit card company, while (as we said!) Uncle Sam is keeping their money interest free. Explaining the dichotomy might help them see that they would be far better off adjusting their withholding rather than waiting to pay the balance off in a lump sum.

Elect to Take Extra Benefits

Many companies offer employees the opportunity to buy additional policies, such as long-term disability or life insurance. While no one likes to confront the fact that they may need them, the reality is that no one can ever know what might happen. In fact, statistics show that more than a quarter of today’s young adults aged 20 can expect to be out of work for at least one year at some point in their career. Applying that extra in their paycheck to these extra benefits can mean the world to them—and their family—should they need it.

Establish an HSA

Many companies offer high-deductible health plans, that often come with a Health Savings Account, or HSA. Employees can make tax-deductible contributions and then use the money to pay for any eventual care—effectively making their healthcare dollars go farther.

Make an Extra Payment on a Mortgage

If an employee holds a mortgage, they may be surprised how much they can save over the life of the loan just by making an extra payment each month—or even each year—in the form of reduced interest. Some mortgages may not allow pre-payment.  You might suggest they speak with their lender to find out if they can make an extra payment penalty-free. If so, ask the lender to share the math about the difference that might make over the long term. The results can be eye-opening.

While you should always make sure your employees seek tax advice from a professional, providing general financial wellness information can help them make better financial decisions. Challenge them to think about whether changing their withholding might help them make smarter financial decisions all year long, rather than relying on a windfall that might come too late.

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