(Bloomberg) — Do you think you pay too much in taxes? You probably do, if you’re like the 46% of Americans who say they want to get a refund check from the IRS this year.
A refund, as financial planners like to call it, is an interest-free loan you gave to the US government. But most taxpayers don’t see it that way. In a nationally representative survey of 1,039 taxpayers by LendingTree Inc., only 7.4% of them agreed with the statement “I don’t like getting a tax refund because it means I pay more all year.” Released on Monday.
Many consumers overpay as a type of applicable savings program, and they don’t have to write a huge check to the IRS at tax time to make sure they don’t. On average, refunds are around $3,000. It’s a fine check, but many are now concerned about how far their cash will go at a time when inflation is accelerating. Financial advisors say that using that money during the year to pay off high-interest-rate credit cards, rather than overpaying in taxes, is one way to try and ease any financial pressure.
Now is a good time, at the beginning of the year, to check whether you have enough taxes withheld, or too few, especially if you’ve had a major life change in the past year, such as getting a new job. Getting married or divorced, buying a home or retiring. Those who want to fix payments so they don’t get a refund can use the IRS Tax Withholding Estimator; You will need last year’s filing to fill it.
Financial planner Marguerita Cheng of Blue Ocean Global Wealth points to the Get It Back campaign of the Center for Budget and Policy Priorities, and other useful calculators from TaxAct. Cheng said she always encourages clients who are freelancers, consultants and gig economy workers to join the (free) Freelancers Union, where they can get good tax information.
More Americans plan to use tax refunds this year to help build or beef up a cash cushion, according to a LendingTree survey. Forty-six percent said the refund would go to savings, up from nearly 40% in the last two annual surveys. The second most cited use for a refund was to pay off the loan at 37%.
Among Gen Z taxpayers – between the ages of 18 and 25 – 62% said they would send money to savings. But Gen Z taxpayers were also the most likely to say they would invest their tax refunds at 14%. More than 10% of Millennials said that, with 7% Gen X-ers and 6.7% Baby Boomers. (The survey was taken between February 7 and 10, when the S&P 500 was up 6% compared to March 11, and before Russia invaded Ukraine.)
Many Americans don’t have the luxury of investing in the stock market, and will devote their tax refund to paying basic expenses like rent or mortgage, and groceries. More than 30% of consumers earning less than $35,000 a year said they would get a refund for paying such expenses. The percentage was 15.6% for those with a household income of $100,000 or more.
Very few Americans said they would take a personal loan or use a credit card to pay their taxes this year – 12%, down from 22%. Still, “one in five Americans worry they won’t be able to pay their tax bill this year,” the survey found.
To contact the author of this story:
Susan Woolley in New York [email protected]
