According to the annual tax refund survey released Wednesday by the National Retail Federation and Prosper Insights & Analytics, more Americans than ever say they’ll keep their tax refunds from the Internal Revenue Service rather than putting that money back into the economy by spending it.
“Tax return season is a time when consumers plan and prioritize financially, whether it is paying down debt or saving for a rainy day,” Matthew Shay, president and CEO of the NRF, said. “With the passage of tax reform and the expectation of more disposable income, we expect to see consumers prioritizing how and when they spend their hard earned dollars, especially during the back-to-school and holiday seasons.”
The recently passed Tax Act reduced the federal tax rate on U.S. corporate earnings to 21 percent from 35 percent. It also lowered most individual income tax rates, including the top marginal rate, to 37 percent from 39.6%, though at the same time, it increased the standard deduction, eliminated the personal exemption, and limits or eliminates a number of other deductions.
Of the 65 percent of taxpayers expecting a refund, 49 percent said they will put it straight into savings. That’s up from 48 percent in 2017 and the highest level in the survey’s 12-year history. The remaining 35 percent that won’t be saving, said they’ll use their refunds to pay down debt. That’s relatively in line with last year, and the lowest rate since 2016, and well below the 48 percent who said so during the 2009 recession.
For 22 percent of those surveyed, tax refunds will go toward everyday expenses. Twelve percent said they’ll use the money for a vacation, while 10 percent will treat themselves to meals out, the spa or new clothes. Nine percent said they’d spend on home improvements, and 8 percent plan to spend on big ticket items like TVs or cars.
“Younger consumers are being more mindful about their hard-earned money, especially those 18 to 24 who have already filed their taxes this year, higher than any other age group,” Phil Rist, Prosper’s executive vice president of strategy, said. “Although this group is focused on allocating a portion of their refunds to savings, they are also more likely to use them for everyday expenses compared with any other age group.”
Of those surveyed, 59 percent said they’ve already filed their taxes or expect do to so by the end of February, while 27 percent will file in March and 14 percent in April.