This year, as has happened before, some states are announcing that their tax refunds will be delayed due to budget woes. If you filed a Federal return and applied for the First Time Homebuyer Credit, you’re also in for a delay of two months or more. We filed in mid-February and the IRS says to expect our refund in mid-April. In years past, many families budgeted around tax refunds. They planned to buy cars, pay for home repairs, or pay for a vacation with the money. That’s fine. However, if you’re counting on your refund to make a mortgage payment or pay a bill before it’s late, you should start looking for other ways to make the payment. While most people receive refunds in a few days or weeks, most states aren’t required to pay refunds until June or even July.
Change Withholding to Budget for Big Expenses
If you usually use your refund to pay for some last-minute budget item, like property taxes, consider changing your withholding so that you don’t receive a refund. Instead you’ll get the money in every paycheck. Set aside the amount you need each month to get you to the full payment when it’s due. That way you’ll avoid potential penalties if your tax refund doesn’t come on time.
Don’t Count on a Refund to Pay a Mortgage
I was stunned to see some homebuyers complaining that they wouldn’t be able to pay the mortgage if they didn’t get their refund immediately. If you can’t afford the mortgage payments without the homebuyer tax credit, you can’t afford the house. What will you do two months from now when the credit is gone? Don’t buy something you can’t afford and expect to pay for it with your refund. If it’s something you need, like a new car, wait until you have the money in your checking account to go shopping.
Call the Lender Now If Your Refund Will Be Late
If you know you can’t make a payment without your refund, call the lender now, before your payment is late, to work out a new payment plan. This probably won’t work for mortgages, but credit card issuers and some other lenders can be more flexible if they know why the payment will be held up.
Schedule Vacations and Other Purchases Later in the Year
If you’re counting on a tax refund to pay for a vacation or a big purchase, don’t schedule it for April. Schedule it for July, by which time you should have the money so you can pay for it without incurring debt. And again, change your withholding so that next year you have the flexibility to travel whenever you want, without waiting for the tax man to pay up.
Remember, a tax refund is not free money (unless you get back more than you owe due to low-income credits). It’s YOUR money that you lent to the government interest-free. There’s no reason to keep giving them loans. I assure you, they would not do the same for you.