Please ensure Javascript is enabled for purposes of website accessibility

Americans Have Big Plans for Their Tax Refunds. Here's What They Look Like.

By Maurie Backman - Jan 19, 2020 at 11:54AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A new survey shows that filers are highly reliant on tax refunds -- but are largely planning to use that money responsibly.

Each year during tax season, millions of Americans eagerly await their refunds. And this year is no exception. An estimated 55% of filers are waiting to get their hands on the money the IRS owes them, reports financial company Self, and they're already making plans for how to spend that cash. Here's what those surveyed have in mind.

1. Paying off credit card bills

A good 44% of Americans think they'll use their refunds to pay down existing debt. That's a smart idea, seeing as how credit cards tend to charge notoriously high interest rates, and how too much credit card debt can damage your credit score.

Pile of 100-dollar bills


2. Savings

Americans are dangerously behind on both emergency and retirement savings. The fact that 41% of filers plan to use their refunds to boost their bank account, IRA, or 401(k) balance is a good thing.

3. Food

The fact that 40% of Americans plan to use their tax refunds for food shopping is both surprising and alarming. Clearly, food is the sort of thing that should be a steady part of everyone's budget -- not the sort of thing that hinges on getting money back from the IRS. To be fair, though, it could be that some of those respondents who indicated their refunds would go toward food may be thinking higher-end products, as opposed to fridge and pantry staples.

4. Utilities

Again, utilities should be included in everyone's budget, so it's a bit strange to see that 38% of Americans would use their refunds to pay the electric bill. Or is it? That statistic may actually speak volumes about the state of Americans' finances -- and not in a good way.

5. Investments

A good 36% of Americans plan to invest their tax refunds. That's a smart way to put that money to work. But in an ideal world, we'd all be investing already, and not counting on a refund to do so.

6. Vacations

For 36% of Americans, a refund spells vacation. That's not a bad thing, assuming those who plan to spend that money on a getaway are first making sure they're doing well in terms of savings and don't have any unhealthy debt in their name.

7. Paying off holiday shopping

Many consumers go overboard during the holidays and wind up in debt. An estimated 35% of Americans say they'll use their tax refunds to pay for the holiday purchases they made, and it's those same filers who would be wise to submit their returns early -- so they can get their refunds sooner and avoid racking up interest on items they shopped for in December.

8. Rent or mortgage payments

Once again, we have a spending category that shouldn't be refund-dependent. But clearly, a large number of Americans are struggling to keep up with their housing costs, so much so that 31% expect to use their refunds to cover a mortgage or rent payment.

Don't count on that refund

Clearly, Americans have put a lot of thought into how they'll use their refunds. But if you're doing the same, remember one thing: Tax refunds are by no means guaranteed. As such, you really shouldn't be counting on one to pay your rent, buy food, pay the water bill, or contribute money to savings. Rather, you should get on a tighter, more efficient budget to ensure that your regular paycheck suffices in covering these and other key costs.

Remember, too, that a tax refund isn't free money. Rather, it's your money that you failed to collect as you earned it. While receiving that lump sum of cash may be nice, you're generally better off getting a higher paycheck every month, so if your refund is huge this year, considering adjusting your withholding to put more money in your pocket sooner. That way, you won't have to wait on a refund to cover your basic expenses.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.