Publication Type
Journal Article
Version
acceptedVersion
Publication Date
7-2026
Abstract
Over three-quarters of U.S. taxpayers over-withhold taxes, leading to tax refunds. This study explores how over-withholding impacts stock investments by comparing individuals' investment patterns from wages and tax refunds. We find that while some portion of tax refunds are promptly invested, the investment rate is lower than that of wages. This suggests that over-withholding, which alters the label and timing of wages into refunds, influences investment behavior. Our cross-sectional analysis indicates that the differential propensity to invest wages versus tax refunds are more pronounced for individuals with automatic investment setups and lower financial sophistication. These findings underscore the importance of considering behavioral factors in the formulation of tax policies and contribute to the accounting literature that examines taxes and investment behavior.
Keywords
Tax Refunds, Income Tax Policy, Stock Market Participation, Household Financial Planning, Tax Over-Withholding
Discipline
Accounting | Taxation
Research Areas
Corporate Governance, Auditing and Risk Management
Publication
The Accounting Review
Volume
101
Issue
4
First Page
1379
Last Page
167
ISSN
0001-4826
Identifier
10.2308/TAR-2024-0408
Publisher
American Accounting Association
Citation
CHEN, Xi Novia; KIM, Jungbae; LOURIE, Ben; and ZHU, Chenqi.
Income tax over-withholding and household investment decisions. (2026). The Accounting Review. 101, (4), 1379-167.
Available at: https://ink.library.smu.edu.sg/soa_research/2123
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.2308/TAR-2024-0408