Although experts say tax refunds are likely to be smaller this year compared to other pandemic years, nearly half of all Americans now say their tax refund will be critical to their household finances.
A new Bankrate survey finds that 43% of Americans say this year’s refund is «very important» to their financial health, and another 32% say it’s «somewhat important.»
That 75% overall compares with 67% last year who said the refund was important.
The higher move comes as the expiration of emergency stimulus programs such as the expanded child tax credit is expected to reduce the size of refunds taxpayers can expect this year. Indeed, through the week ending February 17tax refunds averaged $3,140, compared to $3,536 last year.
But with inflation at multi-decade highs and debt levels rising steadily, Bankrate finds high levels of anxiety associated with the ultimate reach of those tax refunds. Thirty-four percent of those surveyed said they’re worried the money won’t have as big of an impact «due to inflation/increasing costs,» while another 19% expressed concern about covering rising interest payments with them.
Compared to last year, more respondents, 28%, said they would use their refund to pay off debt. It was 23% last year. Another 26% said they would use their refund money to add to their savings this year, up from 32% last year.
Despite the relative reliance on a tax refund, Bankrate senior industry analyst Ted Rossman said counting on such money as a key financial planning tool is generally unwise, although that’s the reality for many households.
“You are getting your money back, which you lent to the government at 0% interest for the past year,” Rossman said in a Bankrate statement.
He continued: “Remember that a tax refund is not free money,” Rossman said. “While some people prefer to receive a lump sum because they fear wasting portions throughout the year, it’s generally best to adjust your withholding so that you get more money out of each paycheck and essentially break even by the time you pay. the taxes”.