ALABAMA A&M and AUBURN UNIVERSITIES

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USE INCOME TAX REFUNDS FOR RETIREMENT PLANNING

AUBURN, April 17---About 70 percent of people who file income taxes each year get tax refunds. The average refund in 1996 was $1,244, which represents an overpayment of income taxes each month of more than $100.

However, most Americans never adjust their W-4 Federal income tax forms or apply for Advanced Earned Income Credits because they like getting an income tax refund each year.

That makes as much sense as overpaying phone bills every month just to get extra money back a year later without interest, says Dr. Fred Waddell, Extension family resource management specialist with the Alabama Cooperative Extension System.

People overpay their taxes because they mistakenly believe their federal income tax is a one-time obligation that comes due every April, and they win if they get a refund, and lose if they owe money to the IRS.

People also overpay their income taxes each month because they think they can't save money any other way.

Many Americans see the overpayment and the refund of their money at tax time as a means of "forced savings" when in reality, few people use the income tax refund to purchase life, health or auto insurance, get needed dental or medical care, or save or invest the money, says Waddell.

Income tax refunds are usually spent on things people think they can't live without. Studies show income tax refund money is most often spent to buy cars and appliances.

Waddell says a simple adjustment in your income tax withholding is an inexpensive way to have what you want, including a financially secure retirement and emergency fund.

"By adjusting your tax withholding (W-4) form to include one or two more federal and state exemptions throughout the year, additional money is available in each paycheck to pay off credit card balances. Paying off credit card balances earns the equivalent of 27 percent interest on your money.