Many Americans look forward to getting money back from the IRS when they file their taxes. But this year, those refunds may be a true lifeline.
Millions of people are struggling financially in the wake of COVID-19. Unemployment levels are extremely high, and many households are grappling with income insecurity as their hours -- and earnings -- have been cut. In fact, this year more so than ever, Americans may be using their tax refunds not for long-term financial goals but for immediate needs, like putting food on the table.
Americans' plans to spend their refunds: Before and after the pandemic
Before COVID-19 took hold, Americans had big plans for their refunds, according to a survey by TD Ameritrade. Earlier this year, 48% of filers had planned to put tax refunds into savings, and 15% said they'd use that money to buy stocks.
Now, only 37% say they'll get to use their refunds for savings purposes, and just 8% are planning to add to their stock portfolios. Instead, 36% of filers plan to use their tax refunds to pay their housing expenses, while 35% say they'll spend that money on bills like utilities.
A bad year for refund delays
The IRS has reportedly been slow to process tax refunds this year, and those who file a paper return could wind up waiting months to get their money. The reason? Paper returns need to be manually processed, and right now, the IRS isn't running at full in-office capacity due to pandemic-related office closures. Anyone who's yet to file a return for 2019 but is due a refund should therefore do so electronically this year, and those with an income of $69,000 or below can do so for free.
Meanwhile, pushing back the tax deadline from April 15 to July 15 may have done Americans a disservice, given that so many opted to use the extra time to get their returns done when they should've instead filed months ago to get their hands on that extra cash. The good news, though, is that the IRS has confirmed that it will pay interest on overdue refunds dating back to April 15, the original filing deadline.
Typically, refunds for electronically filed taxes are processed within 21 days, assuming an error-free tax return. Signing up for direct deposit might further expedite that cash.
Filers who don't complete their tax returns by July 15 can request an extension and get another three months to finish them. But that, again, will only delay the refunds so many Americans desperately need.
Filers may be better off avoiding refunds
The whole reason people get IRS refunds is that they overpay their taxes during the year. Those who are struggling financially but who typically get a sizable refund should consider adjusting their withholding for the remainder of 2020. That way, they'll get more money in their paychecks up front, thereby avoiding a scenario where they're waiting on next year's tax refund to pay the rent, buy medications, or cover any other expense that can only be described as essential.