1 in 10 Younger Tax-Filers Has Already Spent Their Anticipated Refund. Here's Why That's a Huge Mistake

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  • Although tax refunds may be smaller this year, many filers are still expecting money back from the IRS.
  • Spending your refund before it arrives is a mistake, since you don't know if that money will be delayed or if the IRS will seek to adjust your return, resulting in less cash coming your way.

You shouldn't spend money until it's officially landed in your bank account.

This year, tax refunds are expected to be lower than they were in 2022. And there's a good reason for that.

In 2021, a number of tax credits (including the fairly well-known Child Tax Credit) were enhanced as a means of helping Americans cope with the pandemic. And so in 2022, a lot of filers saw larger refunds hit their checking accounts

But because those pandemic-era benefits weren't extended into 2022, tax-filers don't have those higher credits to claim on their returns. The result? Smaller refunds across the board.

Of course, you may be happy to get a small refund this year rather than no refund at all. But one thing you don't want to do is spend that money before it arrives.

Don't count on your tax refund to arrive quickly or in full

A recent survey from Trustpilot found that 1 in 10 Gen Z and millennial tax-filers say they've already spent the money they're expecting to get in refund form. But that's a mistake you'll want to avoid.

For one thing, it could take the IRS a longer than expected to process your taxes. Although the agency says it processes most refunds within 21 calendar days, there are factors that have the potential to delay your refund. These could include a mistake on your return that the IRS needs to reconcile, or filing on paper, which requires your tax return to be manually processed (and generally means you'll be waiting a lot longer to get your money).

Now, let's say you're due a $1,200 refund, and you therefore rack up $1,200 worth of charges on your credit card thinking you'll use your refund to pay off your balance. Well, if your refund is delayed, you might end up having to carry part or all of your balance forward until the money arrives, leading you to accrue interest.

What’s more, you might think you're getting a certain refund amount based on what your tax return shows. But that doesn't guarantee that the IRS will agree with your filing. 

Say you received a 1099 from your bank reporting a bunch of interest income that you forgot to include on your tax return. The IRS might send you a notice that it's adjusting your tax refund from $1,200 to, say, $900. But if you've already spent $1,200, you're in a pickle.

It's better to wait for that money to arrive

If you're doing reasonably well in the savings department, you're keeping up with your essential bills, and you don't have any high-interest debt hanging over your head, then you may decide that you're going to spend your tax refund in full. And that's not necessarily a terrible thing. 

But do yourself a favor and wait for that money to actually arrive before you spend it. That way, you can rest assured that you're really getting the refund amount you think you're entitled to, and you won't have to worry about being late with a credit card bill due to a refund delay.

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