Survey: 69% of tax filers are anxious about their refunds due to inflation, smaller payouts and more
A tax refund is a lifeline for millions of Americans, so much so that 75 percent of U.S. adults who expect to receive a tax refund this year believe it’s important to their overall financial situation, according to a new Bankrate survey.
But experts say taxpayers may be in for a rude awakening this tax season. The Internal Revenue Service (IRS) warned that Americans could see their refunds diminish significantly this year because of shrunken pandemic-era tax credits and deductions. The change could have a domino effect, as families depend on the windfall from tax refunds to pay down debt, build up savings or even cover day-to-day expenses. That comes as inflation and rising interest rates weigh on Americans’ purchasing power.
It’s reasonable to expect that many people will receive smaller tax refunds this year. That’s mostly because many pandemic-related tax breaks have expired: stimulus payments, the expanded child tax credit and the expanded child and dependent care credit, to name a few.
— Ted RossmanBankrate senior industry analyst
Bankrate’s 2023 tax refund insights
- Nearly half of Americans expect to get a refund from the IRS. 45 percent of anticipated tax filers expect a refund this year, 19 percent expect to owe the government and 16 percent believe they will break even.
- Tax filers plan to use their refunds to accomplish other financial goals. 28 percent said they will use their tax refund money to pay down debt and 26 percent said they will use the funds to boost their savings.
- Americans expecting tax refunds this year are anxious about them. 34 percent are worried their tax refund won’t make as big of an impact due to rising costs and 33 percent are worried their refund will be smaller than usual.
- Roughly half of Americans said they will file their taxes by March. 36 percent of U.S. adults who planned to file a tax return this year said they did in February and 25 percent said they will file in March. Some 14 percent were early birds and filed in January, while 13 percent plan to wait until April.
1 in 5 tax filers aren’t sure what kind of refund to expect in 2023
Nearly half of tax filers (45 percent) expect a refund check from the IRS this year, up 5 percent from last year.
While getting a chunk of change back from the IRS feels nice, it isn’t the most effective use of your cash flow. It means you overpaid on taxes and took home less pay throughout the past year.
“You’re getting your money back, which you have lent to the government at 0 percent interest, throughout the past year,” Rossman said.
But most taxpayers have a hard time seeing it that way, experts say.
“Remember that a tax refund isn’t free money,” Rossman said. “While some people prefer to receive a lump sum because they fear they would fritter away the bits and pieces throughout the year, it’s generally better to adjust your withholding, so you get more money from each paycheck and essentially break even at tax time.”
Just 19 percent expect to owe the government, and 16 percent believe they will break even — leaving 20 percent who don’t know what to expect.
Many Americans are counting on their tax refunds
Source: Bankrate survey, Feb. 1-3, 2023
Around 75 percent of U.S. adults who expect to receive a tax refund this year believe the money is important to their overall financial situation (43 percent said very important and 32 percent said somewhat important). Compared to last year, 67 percent said receiving a tax refund was important to their financial health.
Reliance on tax refunds revealed contrasts across age, gender and income levels, the survey found. At 79 percent, women who expect a tax refund in 2023 are more likely to say that it is important or very important to their financial health. In comparison, only 71 percent of men who expect a refund reported it was important or very important. CPA Michele Cagan said the gender wage gap could be a contributing factor.
“Women earn 82 cents for every dollar a man earns, so they need the extra boost more than men,” Cagan said. “Also, single-parent households count on that money more, which tend to be led by women.”
In addition, the importance of a tax refund correlates with income. Tax refunds are important to 82 percent of the lowest-income households expecting them (those with annual household incomes under $50,000), compared to 75 percent of middle-income households (between $50,000 and $79,999) and 69 percent of upper middle-income households (between $80,000 and $99,999). The figure drops to 66 percent for households that make $100,000 or more.
Millennials who expect refunds this year are more reliant on the windfall than any other generation, with 84 percent saying their refund is important compared to 80 percent of Gen Zers and 75 percent of Gen Xers. Only 63 percent of baby boomers who expect refunds this year said their refund is important to their finances.
Nearly 1 in 3 U.S. adults expecting a tax refund will use it to pay down debt
Source: Bankrate survey, Feb. 1-3, 2023
Paying down debt and boosting savings are Americans’ top priorities with their tax refund money this year. This year, 28 percent of Americans intend to pay down debt, up from 23 percent last year. Around 26 percent of Americans plan to use their return for savings, down from last year when 32 percent said they would put the funds toward their savings accounts. These figures echo just how different the state of the economy and consumers’ priorities are from a year ago.
Gen Xers are the most likely to plan on putting their refund toward debt payment (33 percent), whereas Gen Zers are the most likely to plan on putting their refund into savings (31 percent).
More than a third of Americans have credit card debt, which is why using some tax refund money to pay down high-interest debt is “an excellent choice,” Rossman said. While Rossman recommends using part of a refund to pay down credit card debt, he also suggests putting away some refund money in a high-yield savings account to boost emergency savings.
“Think of every dollar you pay down as a guaranteed, tax-free return of whatever your interest rate happens to be. Increasing your savings is an important, and related, priority as well,” Rossman said. “If you don’t have enough savings (and our research shows most people don’t), then your next unexpected expense might well land on a credit card, which sets the debt cycle into motion.”
A little over one in ten Americans (13 percent) expecting a refund say they’ll put it toward paying day-to-day expenses like groceries or gas. Around 8 percent say they will spend their refund on home improvements, 7 percent will finance a vacation, 5 percent will invest the funds and 3 percent will splurge on retail purchases.
Most are worried about inflation and smaller refunds
Source: Bankrate survey, Feb. 1-3, 2023
Note: Respondents could select multiple options.
*Of those expecting a tax refund
The majority of Americans (69 percent) who expect a tax refund have some anxiety about it. Worries about tax refunds span across generations, too — 82 percent of Gen Zers, 78 percent of millennials, 69 percent of Gen Xers and 50 percent of baby boomers who are expecting tax refunds have at least one tax-related worry.
The top concern is that the refund won’t make as big of an impact due to inflation/rising costs (34 percent), followed closely by fears that the refund will be smaller than usual (33 percent).
Early data from the IRS gives taxpayers reason to be concerned. With over 26 million tax returns already processed, the average refund stands at $1,997 as of Feb. 11, 14 percent lower than the same time last year, though that figure will likely change as the season progresses and more people file their taxes. The average tax refund, according to IRS data, was nearly $3,300 last year — a 14 percent jump from 2021. But it will likely fall back down to amounts received in previous years, tax experts say. The average refund was around $2,800 in 2021 and $2,600 in 2020.
About one in five (19 percent) are worried their refund will get delayed, and an equal percentage fret that their refund won’t stretch as far due to higher interest rates. While the IRS issues most refunds within three weeks, it has cautioned that specific issues could slow down a tax refund, such as if a taxpayer files via a paper form or claims certain tax credits, such as the Earned Income Tax Credit. The agency said taxpayers shouldn’t bank on getting their refunds by any specific date when filing their returns in 2023.
At least half of taxpayers file their taxes early
Tax preparers and the IRS encourage people to file taxes early, and it turns out, roughly half of Americans said they have intentions to do so this year. February was the most popular month among prospective tax filers: 36 percent of survey respondents said they planned to file a tax return by then. March is the second most popular month to file taxes (25 percent), while 14 percent were early birds and already filed in January. Some 13 percent plan to wait until April, and a little over 10 percent either don’t know when they will file or will file later than the standard deadline of April 18.
10 tips to make filing your taxes easier in 2023
We may be halfway through tax season, but it isn’t too late to start prepping if you still have to file your taxes. Consider these expert-approved tips to help take the stress out of tax season, and file your return accurately and quickly.
- Gather your paperwork: Pull tax forms from employers, banks and other institutions involved in your finances in 2022 (W-2, Form 1098, and any version of Form 1099, etc.)
- Filing and tax help may be free: The IRS Free File program is open to any individual earning $73,000 or less a year.
- Double-check your return for errors: Before you file, review your return several times for accuracy to avoid delays.
- Set up direct deposit: The fastest and safest way to get your refund is through an electronic direct deposit.
- Request an extension: If you need more time, file an extension by April 18 to move your filing deadline to Oct. 16. An extension gives you more time to file, but not more time to pay.
- Max out your retirement accounts: You can contribute to or even open an IRA for 2022 through April 18, 2023. By contributing, you’re reducing your taxable income for the year, which reduces your tax bill.
- Don’t ignore the IRS: If the IRS sends you a letter because it found an error on your return or claims you owe back taxes, respond quickly to avoid penalties or further delays.
- Adjust your tax withholdings for next tax year: If you received a big refund or tax bill, consider updating your W-4 to ensure you’re withholding the correct amount from your paychecks.
- Track your refund: You can track the status of your federal refund online.
- Keep records: Place your tax return and documents in one place by creating a physical or digital folder.
-
Bankrate.com commissioned YouGov Plc to conduct the survey. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,367 US adults (18+), including 907 expecting a federal refund. Fieldwork was undertaken February 1-3, 2023. The survey was carried out online and meets rigorous quality standards. It employed a non-probability-based sample using both quotas upfront during collection and then a weighting scheme on the back end designed and proven to provide nationally representative results.
