I'm always amazed by the size of the refund most American taxpayers get year after year. The average refund was $2,429 last year, up from $2,324 in 2007, according to the Internal Revenue Service.

I'll lay heavy odds this year's refunds will be bigger, thanks to higher contribution limits for IRAs, deductions for non-itemizers for real estate taxes and disaster losses, and tax credits for certain homebuyers (see pages 30-32, 34-35 and 61 of the IRS instruction booklet for Form 1040).

More big refunds, however, will mean that millions of Americans struggling in a lengthy recession unnecessarily overpaid their taxes all year long. Many have had -- and likely still have -- $200-plus a month needlessly withheld from their paychecks, possibly pushing them into credit card debt if not mortgage default.

The tragicomic ending is that many of these taxpayers, suddenly impatient for their money, pay hefty fees for short-term refund-anticipation loans. A new report by the National Consumer Law Center and Consumer Federation of America found about 8.7 million taxpayers paid more than $900 million in fees for such loans in 2007, the last year for which figures are available. Another 11.2 million taxpayers received a "refund anticipation check" in 2007 at a cost of about $336 million.

Then, if history is any guide, many taxpayers will use at least part of their refund to pay down debt they may have avoided if not for the tax overpayments throughout the year.

To be sure, many people who are entitled to refunds and sign up for refund-anticipation loans are low-income earners who qualify for the earned income credit. Even after zero withholding, they may get a tax refund (technically a refundable credit).

But it makes no sense for other taxpayers to scrape by all year long and possibly go into debt only to get their money back at the end -- and without interest to boot.

Solution? File a new W-4 form with your employer so less money is withheld (check IRS Publication 919, available at www.irs.gov). Or if you make quarterly estimated tax payments, pay less each quarter. The goal of smart tax planning is to anticipate your annual tax liability and get to April 15 without owing or being owed a lot.

That should be your goal also with the "Making Work Pay" credit Congress approved for 2009 and 2010. Continued...