Americans have some decidedly unsexy plans for their tax refunds this year.
Forget about impulse buys or impromptu holidays. These days, taxpayers expect to use the money for the basics: savings, day-to-day expenses, and paying down debt.
A new survey conducted for the AICPA by Harris Interactive found that 46% of U.S. adults expect to put their refund into savings. Another 37% will use it for day-to-day expenses, while a third will pay down debt.
“It just goes to show people are still feeling the effects of a bad economy,” says Ernie Almonte, CPA, CGMA, chair of the AICPA’s National CPA Financial Literacy Commission. He adds that people are still struggling to find a way to save for long-term goals.
The telephone survey of 1,011 U.S. adults was conducted between March 14 and March 17 as part of activities for National Financial Capability Month in April. The AICPA has conducted similar annual surveys since 2007. The question was asked as a “select all those that apply,” which is why the answer totals are greater than 100%.
The survey found that 43% of those who expect to receive a refund consider it more important to their financial well-being this year than in years past. That’s partly because American workers saw their paychecks shrink in January as the payroll tax cut expired, returning Social Security withholding to 6.2% from 4.2% and effectively reducing take-home pay for most workers by 2%.
More than 7 in 10, or 71%, of those employed have felt at least some impact from the paycheck reduction, according to the survey results, and nearly all of those, 96%, have made some kind of adjustment. According to the survey, 70% are putting less in their emergency funds; 51% are cutting back on cable and digital entertainment; 45% are contributing less to retirement accounts; and 17% are skipping payments on credit cards, utilities, rent, or mortgages.
Last year the IRS sent refund checks totaling nearly $310 billion to taxpayers. “It’s critical that they [taxpayers] have a well-thought-out plan for using the funds to maximize the benefit to their financial well-being,” Almonte says. A refund is also an opportunity for a CPA to provide clients with prudent advice.
And if the refund is really large, accountants may need to advise clients to adjust the amount that is withheld from their paychecks in the first place. In such cases, they’re essentially making a free loan to the federal government. Almonte points out that clients could produce a higher rate of return if they had the money themselves.
—Chris Baysden (firstname.lastname@example.org) is a JofA senior editor.