Life, taxes and how people use tax refunds

Did you or will you get a tax refund this year? If so, you’re among the 67% of Americans who expected to get a refund check. This year, 149 million U.S. citizens filed individual income tax returns and the average refund was $3,034, up 3% from last year, according to the IRS.

Here’s how Americans plan to use all or some of their refund this year, according to a survey by Prosper Insights and Analytics.

  • 46% will stash money into savings
  • 38% will pay down debt, such as credit card balances or past due loans
  • 25% will use the cash for everyday expenses, such as groceries or utilities
  • 13% will use the refund to fund a vacation
  • 11% will treat themselves with a major purchase, such as a TV, car or furniture

Financial experts have various ideas on what is the smart way to use a tax refund. For instance, Mary Randall, professor of finance at Rider University, says: “I tell my students that before you put anything in stocks and bonds, one of the best investments you can make is pay off your credit card debt… unless there’s something else incredibly important that you need to spend the money on.”

Bottom line: how to use your refund is up to you.

Meanwhile, do you perceive your refund check as a financial windfall? Many consider the refund as a lifeline to help them take care of financial business or finally buy an item they’ve been saving for.

Others consider the refund as essentially money you’ve been giving Uncle Sam as an interest-free loan. They point out that the average refund this year of $3,034 is more than a month’s worth of income for most Americans and amounts to $250 a month in taxes needlessly withheld from a person’s paycheck. The alternative: Gain more financial power by adjusting your W-4 tax withholding to increase your take-home pay. If you’re interested in exploring this option, try out the IRS withholding calculator.

Not everybody, of course, gets a refund. The IRS netted over $950 billion in income taxes. How should the government use that money? U.S. taxpayers say the top priorities are public education, healthcare and job creation, according to a survey cited by cnn.com.

 

Sources: acainternational.org, gobankingrates.com, cnn.com, irs.gov, creditcards.com, forbes.com, bankrate.com and usatoday.com