Tax refunds serve many Americans in different ways. Some use it as a chance to put themselves in a better financial place while others spend it on the latest model of their favorite mobile phones or a shopping spree. There are also some people who use tax refund to pay off long-standing debt or add it to a specific part of their savings like retirement or college fund for their kids. In any financial way, there is no denying that the annual check is a beneficial incentive in the lives of Americans.
According to the IRS, taxpayers may receive tax refund with an average of $3,143 on February 22, up from $3,030 from the start of 2019. Despite the Trump administration’s failure to adjust paycheck withholding, the average tax refund amount is almost equal to the previous year’s figures.
According to the finance resource firm GoBankingRates, the majority of its respondents plan to use tax refunds to finish off debt. Wealth advisor Austin Winsett believes that paying for things like consumer debt with a tax refund is an ideal decision. On WalletHub’s separate survey, more than 1 in 3 Americans are afraid that a large purchase will max out their credit cards.
While most Americans would want to pay off debt with tax refunds, GoBankingRates’ survey reveals that about only 1 out of 10 Americans use tax refund for investments, savings, and necessary spending. Only 7 percent of Americans, meanwhile, are willing to put their tax refund toward retirement. Three percent of Americans, however, plan to make a luxury purchase.
Filers will need to submit returns as the Tax Cuts and Jobs Act will take effect for the tax season. The act increased standard deduction and removed personal exemptions and individual income tax rates. In 2018, the IRS reminded taxpayers to review and understand their W-4 for the year. IRS wants to ensure that taxpayers are withholding the right amount of taxes from their overall pay.
When withholding a smaller amount than required, a taxpayer will get more money from a paycheck but may see his tax refund become smaller or incur a debt to the IRS. A large refund, meanwhile, may produce interest and dividends, according to Winsett.
Many Americans may have plans on how to use their tax refund, but almost one-third of the respondents by GoBankingRates are not expecting one for this year. No tax refund may be a good sign for taxpayers as it implies that the taxpayer paid the exact amount of tax liability owed to the country.