Majority of Americans Still Prefer Tax Refunds Despite Drawbacks
As the 2020 tax deadline nears, the volume of tax prep commercials is steadily increasing. In many of these ads, the service advises that their customers see the largest refunds. However the irony of such spots is that, according to some experts, large refunds are actually not ideal as they essentially amount to giving the federal government a free loan. Nevertheless a new survey conducted by the personal finance magazine Kiplinger alongside Barclays consumer bank finds that the majority of taxpayers still prefer receiving their annual refund checks.
According to the survey, 63% of respondents said they enjoyed getting a refund check while 37% preferred receiving larger paychecks throughout the year instead. Of those who declared their love for refunds, 31% said that this option forced them to save money. Meanwhile 63% stated that they simply just liked receiving the large sum at once.
Of those surveyed, nearly three-quarters said they received a refund on their federal taxes last year. In these cases the median refund amount was $2,154. Perhaps not surprisingly, respondents who reported using a tax professional to file their returns saw higher refunds on average. The median among those who utilized pros landed at $2,620 compared to just $1,715 for self-preparers.
In terms of what taxpayers did with their refunds, two-thirds of respondents claimed they saved at least a portion of it. Another quarter of those surveyed reported using it to pay credit card bills. Other popular responses included using the funds to buy gifts or book a vacation (16%), invest (10%), or pay down student loan debt (3%).
Commenting on the survey’s finding, Kiplinger editor Mark Solheim stated, “Americans are addicted to tax refunds. Despite knowing they are giving the government a free loan, taxpayers love seeing that big check or direct deposit every year.” Additionally Barclays US Consumer Bank’s head of banking Andrew Harris explained why this preference could be costing consumers, noting, “It makes sense to think about forgoing that big refund and placing your money in a high interest savings account where deposits can earn around 1.7% to 2% annually.”
Although large tax refunds may seem appealing and can be put to good use by some recipients, it may at least be worth considering whether it makes the most financial sense for you. Should you decide you’d rather have larger paychecks throughout the year instead, ask your human resources or payroll department about how you can adjust your withholdings. That said, if you — like the majority of others — still prefer receiving a sizeable refund check instead, then to each their own.
Also published on Medium.