Size matters when it comes to tax refunds, especially when those dollars need to be stretched.
According to a recently released report from Bankrate.com, concerns over smaller payouts and inflation anxieties are causing 69% of those expecting a federal tax refund this year to have at least one worry about their refund. The study also showed that 75% of Americans who expect to receive a federal tax refund in 2023 say the money is “important to their overall financial situation,” up from 67% last year.
Thirty-four percent fear that their refund won’t make as big of an impact due to rising costs, while 33% worry the refund will be smaller than they expect, according to the study. Moreover, about 1 in 5 (19%) respondents expressed anxiety that their refund will be delayed, while a similar percentage fear that their refund won’t stretch as far due to higher interest rates.
The average refund check so far this year through Feb. 3 was $1,963, or almost 11% lower than at the same time last year, when refunds were averaging about $2,201 per filer, according to IRS data.
“It’s reasonable to expect that many people will receive smaller tax refunds this year,” Bankrate.com senior industry analyst Ted Rossman said in a statement. “That’s mostly because many pandemic-related tax breaks have expired: Stimulus payments, the expanded child tax credit and the expanded child and dependent care credit, to name a few.”
Breaking it down by gender, the report showed that 79% of women and 71% of men expecting tax refunds in 2023 say their refund is important to their financial situation, with nearly half of women (46%) saying it is “very important,” compared to 39% of men.
Younger respondents were more likely to say they have at least one concern about their tax refund this year. The study showed younger generations were also more likely to report that the refund is important to their overall financial situations, with nearly half of millennials (49%) and Gen Xers (48%) saying it is very important.
As to how they intend to use those refunds, paying down debt (28%) and boosting savings (26%) were listed as Americans’ top priorities this year. That compares to 32% who prioritized savings last year.
"I recommend taking time in 2023 to dig deeper into tax planning as the perfect scenario is no refund or payment due each year," said Beth Bosworth, head of financial planning at Perigon Wealth Management. "Take control of your annual cash flow and savings plans, including taxes. A tax refund is really making a short-term loan to the federal government, so why not make plans to keep more or all of that money in your pocket?"
The survey showed that 13% of those who expect to get a refund plan to use most or all of the money to pay for day-to-day expenses, while 8% will use it for home improvements, 7% for a vacation, 5% will invest the money and 3% plan retail purchases.
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