A tax refund is considered an interest-free loan to the government because you overpay your taxes throughout the year (via payroll withholding), effectively lending that extra money to the government interest-free, and they only return it to you months later after you file your return. This is money you could have had in your bank account earning interest, paying down debt, or investing, but instead, the government held it interest-free for a period, using your own money for their operations.

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