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In the News: Using Tax Refunds Wisely

Mailbox-tax-returnDo you see your neighbor waiting by the mailbox for their tax refund? Chances are it’s not so they can use it on a fancy vacation or a new spring wardrobe.

This year, workers are most likely to save their refund or use the money for day-to-day expenses, according to a recent survey conducted for the AICPA by Harris Interactive for National Financial Capability Month. And that refund money is substantial. An AccountingWEB article on the survey results states that through March 22, the average refund this tax season is $2,827. That’s trending slightly lower than this time last year, when the average individual refund was $2,860.

“Last year the IRS sent checks totaling nearly $310 billion to taxpayers, underscoring the significance of tax time to American households,” said Ernie Almonte, CPA, CGMA, chair of the AICPA’s National CPA Financial Literacy Commission.

Asked to select all the ways they will use their tax refund, nearly half of U.S. adult respondents, 46 percent, said they expect to save some portion this year; 37 percent will use it to pay for day-to-day expenses; and one-third, 33 percent, report that they intend to use it to pay down debt.

A likely cause for this responsible financial behavior is that a substantial portion, 43 percent, of those who are expecting a refund consider it more important to their finances this year than in years past. Part of the reason that refunds are so important in 2013: the expiration of the payroll tax cut. In January, Social Security withholding returned to 6.2 percent from 4.2 percent and effectively reduced take home pay by 2 percent.

According to the survey results, 71 percent of those employed have felt some impact from their paycheck reduction. And nearly all of those, 96 percent, have made some kind of adjustment. According to the survey, 51 percent are cutting back on cable and digital entertainment; 45 percent are contributing less to retirement accounts; and 17 percent are skipping payments on credit cards, utilities, rent or mortgages.

“This year, in the wake of a paycheck squeeze, many Americans are counting on those refunds for relief – a way to bolster savings or shore up budgets. It’s critical that they have a well thought out plan for using the funds to maximize the benefit to their financial well-being,” said Almonte.

In the AccountingWEB article on the survey results, Almonte advises clients who are receiving a refund to:

  1. Set aside money for immediate household expenses.
  2. Build up an emergency fund to cover at least six months of expenses.
  3. Set aside some of the money for a retirement fund.
  4. Pay down credit card debt.

The CPA profession has a comprehensive financial education program—360 Degrees of Financial Literacy—to help Americans achieve long-term financial success. A robust website (360financialliteracy.org) is the centerpiece of the program with tools, calculators and advice to help Americans understand and manage their financial needs during 10 life stages, from childhood to retirement.

Since 2007, the AICPA has conducted an annual survey of Americans to determine their top financial concerns and assess their financial well-being. Harris Interactive conducted this year’s telephone survey on behalf of the AICPA within the United States between March 14 and March 17, reaching a nationally representative sample of 1,011 adults aged 18 and older by landline and mobile phone.

, AICPA Staff.

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