This year's tax-filing deadline is Tuesday, April 17, and 64% of Americans expect to receive tax refunds when they file their returns, according to a recent poll.
Many consumers look forward to tax-filing season because they get a large tax refund. In fact, the average refund for a return filed in 2017 for the 2016 tax year was $2,895.
Here's how Americans are planning to use their refund windfalls—and how they can access their typical tax refunds throughout the year rather than waiting for tax time to get them.
43% of Americans Plan to Save Their Tax Refunds
The most popular planned use of tax refunds, coming in at 43%, is adding the money to their savings. Shoring up savings accounts or creating an emergency fund with a tax refund can help Americans prepare for unexpected expenses or reach their other financial goals, such as putting a down payment on a home.
While experts vary on their recommendations for the size of an emergency fund, three to six months' worth of expenses is a common recommendation. A tax refund probably won't fully fill an emergency fund unless some savings have already been put aside, but a tax refund is a great way to get started toward this important financial stepping stone.
36% of Americans Plan to Pay off Debt
Paying off debt is another priority when it comes to planned uses of tax refunds. While 36% of respondents overall selected this answer, more women planned to pay off debt (40%) than men (33%). Paying down debt isn't exactly a fun use of a tax refund like putting money toward a vacation (how 10% of respondents plan to use the money) or splurging on a luxury purchase (what 6% plan to do), but it is a more responsible use of funds.
If paying down debt results in paying off a debt in full or reducing a balance on a revolving credit account, it could free up money for other uses throughout the year that would have previously been used for debt payments, as well as improve your credit. Even if a consumer's debt payments remain the same after paying extra toward their debt, as they likely would with a traditional car loan or a fixed-rate mortgage, the move will at least put the person closer to their debt payoff goals.
Consumers Could Speed up Their Debt Payoff Plans
Some consumers could pay off their debt even faster and potentially save money in the process by refinancing high-interest debt. Current credit card interest rates averaged 16.41% in March, but consumers with excellent credit could expect to secure a personal loan with an interest rate in the 10% to 12% range. If a person has an asset they could put up as collateral, such as home equity, a secured loan could provide even lower interest rates.
Americans Don't Have to Wait for Their Tax Refunds Next Year
While many Americans enjoy getting a tax refund, others would rather have access to that money throughout the year. If a person consistently gets tax refunds every year, they can adjust their federal income tax withholding by updating their Form W-4 with their employer.
The recent tax law changes in 2018 have also changed the tax withholding tables, so taxpayers should use this IRS-provided calculator to get a better estimate of how much tax should be withheld to reduce their yearly refund and increase their paychecks.
Consumers should pay particular attention to how they budget their larger paychecks to make sure the extra money that would have ended up in their tax refund check doesn't get spent mindlessly. The extra net pay received in each paycheck could be used to make extra payments toward high-interest debt, which should result in paying off debt even faster, or it can be put toward other more pressing financial needs.
Maxime Rieman is Product Manager at ValuePenguin. Educating and assisting shoppers about financial products has been Rieman's focus, which led her to joining ValuePenguin, a consumer research and advice company based in New York. Previously, she was product marketing director at CoverWallet and launched the personal insurance team at NerdWallet.
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