In your mind, do you pay too much in taxes? If you’re like the 46% of Americans who say they want to get a refund check from the IRS this year, you probably do.
Finance experts say that a refund is like a loan you took out of the US government that doesn’t have to pay back. But most people don’t think that way. Only 7.4 percent of the 1,039 taxpayers surveyed by LendingTree Inc. agreed with the statement “I don’t like getting tax refunds because it means I overpaid during the year,” the company said in a statement.
Many people overpay to save money and avoid having to pay a lot of money to the IRS at tax time. As a general rule, refunds are around $3,000. If you get paid, that’s a good thing. Many people are now worried about how far their money will go at a time when inflation is rising. In order to avoid overpaying taxes, you could use that money to pay off high-interest rate credit cards during the year. Financial advisers say this is one way to try and ease your financial stress.
Taxpayers say this is how they’ll spend their money:
Early in the new year is a good time to check to see if you’re having enough tax withheld, or not enough, especially if you’ve had a lot of big changes in your life in the last year, like getting married or getting divorced. You can also check to see if you’re having too little tax withheld, or too much. There is an IRS calculator for people who want to make sure they don’t get a refund. To use it, you need to know how much you paid last year so you can fill it out.
She is a financial planner at Blue Ocean Global Wealth. Marguerita Cheng says that other calculators from the Center on Budget and Policy Priorities’s “Get It Back” campaign and from TaxAct are also very useful. A lot of her clients who work on their own or in the “gig economy” should join a free freelancer’s union where they can get good tax advice, Cheng told a news report.
LendingTree found that more people plan to use their tax refunds this year to build or strengthen their cash cushion. Almost 46 percent said that they would put their refunds into savings, up from about 40 percent in the last two years’ worth of surveys. There were 37 percent of people who said they would use a refund to pay off their debt.
Among Gen Z taxpayers, those between the ages of 18 and 25, 62% said they’d save the money. They were also the most likely to say they would invest their tax refund, at 14%. People in their 20s: 10%; Generation Xers: 7%; Baby Boomers: 6.7% said the same thing. As of March 11, the S&P 500 had more than 6% more money in it, but that was before Russia invaded Ukraine.
Many Americans don’t have the money to invest in the stock market, so they spend their tax refunds on things like rent or a mortgage and groceries. 30 percent of people who make less than $35,000 a year said they’d use the money to pay for things like that. For people with a home income of $100,000 or more, the percentage was 15.6%.
Far less people said they would take out a personal loan or use a credit card to pay their taxes this year, down from 22% last year. Many Americans still worry that they won’t be able to afford their tax bill this year, a survey found.
