According to a new poll from CreditCards.com, 31% of consumers expecting refunds plan on saving the money, not spending it on fancy vacations or new electronics. And 68% of those surveyed who are expecting refunds believe their financial well-being depends on them.
If you’re expecting a tax refund come spring, do you know how you’ll spend it?
According to a new poll from CreditCards.com, 31% of consumers expecting refunds plan on saving the money, not spending it on fancy vacations or new electronics.
After saving the refund, the next most popular answer was paying down debt (24%), followed by just 11% who said they would use the money to pay for daily expenses.
Older millennials – those aged 31 to 39 – are more interested in paying down debt with their refunds than saving them (28% versus. 22%).
Many Americans expecting a refund are also depending on that infusion of cash. The poll revealed 68% believe their financial well-being depends on the money they expect to get back from the IRS.
And those refunds are more critical to women than men – 73% of women versus 63% of men said that the money is “very” or “somewhat” important to their financial health.
See related: These are the best credit cards to pay your taxes
Democrats think the rich need to pay more taxes, Republicans think system is fair
CreditCards.com also asked survey takers if they thought rich people pay too much or too little in taxes – it did not define “rich,” but left it up to individuals to determine what that meant.
More than half (54%) said the rich pay too little, only 18% said they should pay less and 27% said they pay their fair shares.
In addition, Democrats were far more likely than Republicans (70% versus 24%) to say the rich should pay more taxes.
Ted Rossman, industry analyst at CreditCards.com, said he expected more Republicans to say the rich are already taxed too much – instead, their most popular answer is that the current system is fair (42%).
“And even though 70% of Democrats thinking the rich ought to pay more is a high percentage, I thought it would be even higher,” he said.
The poll also showed 16% of Democrats think the rich are already taxed too much, and another 14% say the current system is best.
“That’s almost a third of Democrats against raising taxes on the rich,” Rossman pointed out.
Tax refund poll: major findings
Check out some other important findings from our latest poll:
- Income dictates who values refunds more: Eighty percent of those expecting refunds who make less than $40,000 per year and 71% of those earning between $40,000 and $80,000 said their refund was important to their finances. Only 51% making $80,000-plus concurred.
- Lots of Americans think they’ll receive a windfall: Almost half of U.S. adults (49%) expect to receive a refund this year, 18% said they will probably owe additional taxes and 33% said neither.
- Most don’t mind letting Uncle Sam borrow their money: When you get a refund it means you overpaid your taxes during the year. Still, most Americans prefer a lump sum refund (86%) instead of seeing that extra money in their paychecks throughout the year.
The survey of 2,796 U.S. adults was conducted online between Jan. 29-31, 2020. See survey methodology.
Women care more about their refunds than men do
Katie Ross, education and development manager at American Consumer Credit Counseling, said more than 64% of consumers who have contacted her company for credit counseling services are women and 35% are men, according to company data.
From Ross’s perspective, men and women think differently about money and financial well-being, which is why women care more about their refunds.
“Knowing that a tax refund is on the horizon likely relieves some of the money stresses that women have,” Ross said.
Most prefer a big refund to seeing more in their paychecks
Rossman said that although the findings showed most people really need their tax refunds, they are overwhelmingly in favor of giving the government what amounts to an interest-free loan throughout the year.
“That’s not logical,” he said.
While it feels great to get a windfall – the IRS said the average refund last year was almost $3,000 – it’s almost always better to get the money a little at a time throughout the year, he explained.
“My advice if you receive a refund is to adjust your withholding, so you get a smaller refund but more money in each paycheck,” Rossman advised.
Then, be practical about how you use it and employ strategies such as automating savings and prioritizing high-cost credit card debt, he added.
Ross said taxpayers should research the impacts of smaller or larger weekly withholdings.
“Personally, having fewer taxes taken out weekly and getting more weekly income gives me more control to manage my financial life,” Ross explained.
Instead of giving her income to the government interest-free, Ross prefers to use it to pay down debt and save with interest.
“In my opinion, consumers need to change their thinking about money,” Ross said, “I mean, sure, it’s great to get a huge lump sum in April, but why not take advantage of having more weekly to improve financial well-being right now?”
Even when it is explained that the withholding amount is an interest-free loan to the government, most consumers want to continue to get a large refund, according to Michael Sullivan, personal finance consultant at Take Charge America, a nonprofit that educates consumers on all things financial.
They have no confidence in their ability to save on a regular basis and see no other way of accumulating enough money to really make a difference in their lives, Sullivan said.
“So a check for $2,000 or $3,000 (or often $5,000 or $6,000) is a fantasy come true for families just getting by – and in America, most families think they are just getting by.”
According to 2018 numbers from the U.S. Census Bureau, the median income in the U.S. is $61,937 and according to the IRS, the average refund is around $2,800, which means most Americans are getting at least the equivalent of an extra paycheck, Sullivan explained.
That makes the income tax refund check the largest amount of money that most Americans see in a typical year, he noted.
If the family needs a new car, television, bed or a thousand other things, the tax refund is the only practical way to do it – it’s basically a savings account for many families, Sullivan added.
See related: Is credit card debt tax deductible?
Even those making $80,000 per year need that refund
Sullivan said that because a family of three making less than $22,000 per year lives in poverty, it stands to reason that lower-income people need more of their money for food, shelter and other basic needs.
People earning less than $40,000 per year will likely need the income tax refund just to get by, he added.
“As incomes increase, it becomes more of a windfall, but Americans of all incomes are likely to be living paycheck to paycheck these days and may really need the refund to stay afloat, even if they earn more than $80,000,” Sullivan said.
See related: Do tax liens affect your credit score?
It’s doubtful 3 in 10 will save their refunds
Sullivan is skeptical that 31% who receive refunds this year will stuff that extra cash into savings accounts.
“One need only observe the advertisements at this time of year to see that vendors have their sights on getting those dollars, and many consumers are so anxious to get the funds that they will pay to get a tax refund loan,” he said.
Sullivan also noted that many consumers who ran up credit card debt over the holidays may be dependent on refund checks to pay it off.
Although most of the people we surveyed said they plan on saving their refunds or paying down debt, best-laid plans often go awry.
In addition, survey takers overwhelmingly said they’d rather get a large refund than get more in their paychecks during the year.
If you prefer a lump sum refund, at least consider the merits of getting some extra money in your paychecks all year long – you might decide it’s a better way to go for your particular situation.
CreditCards.com commissioned YouGov Plc to conduct the survey. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,796 adults. Fieldwork was undertaken online from Jan. 29-31, 2020.