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A majority of American taxpayers are anxious about their Internal Revenue Service (IRS) refunds this year, as they expect to see lower amounts.
As tax season quickly approaches, millions of American are stressed out about their filings this year, as the economy is in the period of high inflation.
At least 69 percent of those expecting to receive a tax refund this year fear an issue with their filings, according to a Mar. 1st report by Bankrate, a consumer finance company.
The survey said that only 45 percent of tax filers expect a refund this year, 19 percent expect to pay the government for what they earned, and 16 percent believe they will break even.
Thirty-four percent of respondents believe that their rebates will not be big enough due to rising inflation, while 33 percent do not expect it to be as large as they had hoped.
Exactly 19 percent are concerned about a delay in their tax rebate, while another 19 percent admit that high interest rates are the primary reason why they think value of their refunds will be less this year.
More Taxpaying Americans Plan to Use Refunds to Pay Down Debts
“It’s reasonable to expect that many people will receive smaller tax refunds this year,” said Ted Rossman, as senior analyst at Bankrate.
“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,” he said.
Most filers intend to use their refunds to fulfill particular financial goals, with 28 percent planning to use the cash to pay down debts or credit card payments, while 26 percent will put it into their savings for a rainy day fund.
This is reversal from 2022, when 23 percent of respondents said they would use their refund for debt and 32 percent would put it aside for their emergency fund.
Another 13 percent plan to use their rebate this year for day-to-day expenses, such as groceries or energy bills, while only 7 percent will use it to go on vacation.
Rebates More Likely to Be Smaller This Year
Meanwhile, over half of those surveyed said they already have, or are planning to file their taxes by March.
About 36 percent of those who planned to file a tax return this year said they filed in February and 25 percent said they will file this month.
A number of tax filers filed early, with 14 percent submitting their submissions in January, while 13 percent plan to wait at the last moment in April.
“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.”
The fear of a smaller is partially justified after many of the tax breaks and pandemic relief aid finally expired last year.
As prices go up and generous government stimulus money dries up, more Americans are depending on their tax returns for their financial situation.
The number of respondents saying that their tax refund would help their living circumstances rose to 75 percent in 2023 from 67 percent last year.
Of that number this year, 43 percent of them said that the refund is very important to their financial well-being.
Concerns Over Tax Refund Based on Age and Income Level
Freelancers in particular say they worry about getting hit with a high tax bill due for not making the proper installment payments, while those relying on their refund stress fear that it will probably be minuscule.
Millennials and Gen Z are less likely to use their refund to repay their debts compared to older generations, but a majority say they are more reliant on them for their finances.
However, 82 percent of those who earn below $50,000 a year view their refund as very important to their financial health compared to those making above that amount. The figure drops to 66 percent for households that make $100,000 or more.
“If you have credit card debt, and more than a third of Americans do, then using some of your tax refund money to pay down this high-cost debt would be an excellent choice,” Rossman said.
“Increasing your savings is an important, and related, priority as well. If you don’t have enough savings and 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,” he continued.
Many analysts are increasing worried about American’s rising credit card debt due to rising inflation and higher borrowing rates over the past year.
“We are ‘fighting’ inflation with credit card debt,” said The Kobeissi Letter, a global capital markets report, in a series of tweets.
“Rates are still rising and inflation just increased for the first time since October 2022. How can this end well?”
“If we want to avoid a credit bubble, something needs to be done. It may already be too late,” the report warned.