More than 111 million of us, over 70 percent of working Americans, got a little extra cash boost in the form of a tax refund during last year’s tax season. A refund can offer an unexpected boost, which could provide additional funding for everything from debt reduction to a down payment on a house.
Of course, not everyone will get money back. Plenty of us will have to write a check before tax day comes on April 15. But whether you owe or receive money during this tax season, a little knowledge and planning can help buffer the impact of a tax bill or help set a strategy for how to use your refund.
2018 brought sweeping tax reforms that could impact your refund this year or even trigger a surprise tax payment for some, so it might be a good idea to get with your tax pro sooner than later. Between Jan. 28 and March 1, 2019, the IRS reported a $22 increase in the average refund compared to 2018.
With tax season in full swing, we thought it would be useful to explore how fellow Americans deal with their taxes in general and detail some of the habits surrounding this important time of the year. We surveyed 1,206 people across the U.S. about their tax histories and plans for the tax season – here’s what we found.
Typically, the process of taxation starts when you first become employed and select how much you choose to withhold on your IRS Form W-4. The amount withheld in taxes will be dependent on your particular situation, as set out on your W-4.
Tax refunds occur when too much was withheld from your income during the prior year. You may owe money if you did not pay enough taxes during the year or if your earnings bumped you into a higher tax bracket. To prevent unexpected year-end tax consequences, keep close tabs on your income and if necessary, put money aside to account for what you may owe.
Our survey found there was a clear difference in tax season emotions. Of the people who expected to owe, 68 percent dreaded filing. In comparison, for those who expected a refund, only 40 percent dreaded filing.
All in all, about half of those surveyed expected a refund, with a little over a quarter expecting to owe.
According to the IRS, the average refund issued during the week ending March 1, 2019, was $3,068. In other words, a refund in 2019 could be helpful for those who receive one. While it might seem tempting to splurge with seemingly free money, those surveyed, on average, plan to put that money to good use. Nearly 40 percent of Americans surveyed planned to deposit their refund right into their savings account, with another 20 percent injecting it into their checking account.
While a YouTube video can teach you how to tie a bow tie or make scrambled eggs like Gordon Ramsay, tax preparation might not be as simple. Filing your own tax return can be challenging, as a mistake in your tax return could lead to it being rejected, questioned or even audited by the IRS. Returns get increasingly complex to file if your life situation includes kids, houses, rental properties, self-employment, and more. The new law made changes to the previously existing tax code, but even with the recent changes, there are a ton of nuances that might be best navigated by a professional.
Luckily, there’s technological help (aka software) to file your taxes correctly.
Nearly three-quarters of those surveyed planned to use software or an app to file their 2018 taxes. 44 percent of Americans believed they’d be unable to file their taxes without the help of technology or an accountant. Over half of respondents expect to incur some kind of cost when filing their taxes.
To see who wore the tax facts crown, we added a general knowledge tax quiz to our survey. Based on our data, tax insight was directly correlated with the number of tax returns filed. In other words, age and the experience that comes with it determined typical tax savviness.
When asked to identify the last day taxes can be filed without an extension, more than 30 percent of our respondents missed that key date. It’s important to note that the April 15 deadline can vary year to year due to weekends and holidays.
Baby boomers were the most likely to overestimate their tax bracket (the percentage of income paid in taxes), while Gen Zers were the most likely to correctly identify what they should be paying. There may be some logic here, as older generations of Americans may have been exposed to higher federal income tax rates in the ’50s, ’60s, ’70s, and early ’80s.
Taxes, tax refunds and tax time are popular topics in the news, especially during the first quarter of year, but our individual stories sometimes get lost in the media. If you’re on the receiving end of a refund, there are multitudes of ways you can put that money to good use. A cash injection can act as a catalyst to improve your own personal economic situation.
If you’re like the majority of Americans surveyed, it’s never a bad idea to deposit that money into a high-yield savings account like those we offer here at Marcus. Or if you’ve been planning on using that refund to kick-start a home improvement project, make a large purchase, or pay down some debt, we also offer no-fee personal loans so that you can get your financial goals accomplished without breaking the bank.
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