The IRS will begin issuing tax refunds as early as mid-February. For many Americans, this will be the only windfall of 2022 — and how they plan to spend it says a lot about the toll of the past two years.
Taxes in 2022: Find out everything you need to know about filing, refunds and more
Important: major tax changes for 2022 you need to know
GOBankingRates surveyed 1,000 American adults, and the results revealed that for most people, this year’s refund won’t mean jet skis or European river cruises. Most people have much less exciting and much more pragmatic repayment plans. And this year, it’s rather good news.
This year, bill collectors and lenders will get the most U.S. refund checks
The study found that almost 20% of respondents plan to splurge and around 10% plan to travel. Around 15% will invest their repayments and nearly 45% will put them into savings. Three in four, however, plan to use their repayments to pay bills or pay off debt, and they do both in roughly equal percentages – 38.2% and 37.4%, respectively.
Young middle-aged people are more likely than older Americans to spend their repayments on satisfying their lenders and paying bills. Women are more likely than men to do one or the other.
Find out why you might not get a tax refund this year
The pandemic and inflation are still there, but the stimulus is not here
2021 has been a tough year, but one that has come with $1,400 stimulus checks, thousands of child tax credit advance payments, expanded unemployment and rent protections that all have since expired.
In 2022, most people are on their own again – and the study results show that the masses are taking it seriously, and that’s good news.
“This is absolutely a good sign,” said Ayelen Osorio, content editor and financial blogger at crypto-trading platform Netcoins. “Using tax refunds to pay off debt or make room in their budget is a great strategy. It shows that people are responsible for their money and have made sound money management decisions. »
Plus: Should you file your case earlier this year?
If you have credit card debt, you’ve already spent your refund
Your refund is not a stimulus payment. This is income that the government has diverted from your salary throughout the year, causing you to pay too much tax. If you have a lot of credit card debt, your employer may be withholding too much money from your salary, which may require you to charge for purchases that you could have covered in cash if you had kept more cash.
Consider adjusting your deductions, but in the meantime treat your repayment as money owed – debt repayment, after all, is an investment in yourself.
“Eliminating credit card debt is a particularly smart move because it effectively generates a return of 13% or more per year,” said Sean Fox, president of Freedom Debt Relief. “Think of it this way: If your credit card charges 15% interest and you pay it back, you avoid losing 15%, which is actually a 15% return. Plus, you have this money to save or invest, which means it can earn you more money. Or, think about what happens if you have $3,000 in credit card debt with an interest rate of 18 % A standard minimum payment of 3% would be $90 per month. Paying just that, which decreases over time, will equal $2,698.44 in interest and take almost 16 years to pay off. This means that the item you bought will cost you almost double its purchase price – and you won’t have the opportunity to invest that money and earn something on it.
Important: The tax mistakes everyone makes – and how to avoid them
‘This is one of those years’
The study results could be interpreted to mean that people are becoming aware and thinking about their own financial future, but it could also mean that they are desperate and scared.
“Unfortunately, people might be spending their tax refunds responsibly because they don’t feel financially secure,” said Brittany Kline, personal finance expert and co-founder of The Savvy Couple. “This may not be a good sign for the economy, which is still feeling the effects of a pandemic more than two years old.”
Learn: The Best and Worst States for Taxes – Ranked
Andrei Vasilescu, co-founder and CEO of DontPayFull, agrees.
“I would like to say that this is normal and usual behavior that I always see during tax season,” he said. “But I’m afraid it’s not a great sign of financial literacy and responsibility among people, but a sign of financial insecurity. In years past, most people indulged in their tax refunds a bit, but knowing the money is for getting into debt means people feel the need to use even their “fun” money for practical things. I’m not saying people are never responsible for their tax refunds, but, you know, there are leaner years and fatter years – years when you feel confident spending your money on things non-essential and years of keeping your wallet tight to you. This is one of those years.”
More from GOBankingRates
Methodology: GOBankingRates surveyed 1,000 Americans ages 18 and older nationwide between January 31 and February 1, 2021, asking them six different questions: (1) How do you plan to file your taxes this year? ; (2) When do you expect to file your taxes this year? ; (3) How much do you expect to receive in tax refund? ; (4) What do you plan to do with your refund? (Select all that relate to it); (5) Are you sure you are receiving all the deductions for which you feel qualified? ; and (6) If you received the Child Tax Credit last year (2021), how do you think this will affect your taxes? All respondents had to answer a filter question: Do you plan to file a tax return in 2022?, with a “Yes” answer. GOBankingRates used PureSpectrum’s survey platform to conduct the survey.
This article originally appeared on GOBankingRates.com: 3/4 of Americans Consider Paying Off Debts or Bills With Their Tax Refund – Here’s Why It’s a Good Financial Decision