15% of People Don’t Expect a Tax Refund — What Are They Doing Right?

West Palm Beach, USA - June 10, 2014: An opened envelope with the return address showing the U.
NoDerog / Getty Images

Hard as it may be to believe, tax refunds are something of a mixed blessing. Although there’s no denying the thrill of getting a large tax refund from the federal government, planning for a refund isn’t necessarily a prudent financial strategy. Yet, many Americans still look forward to getting one. To determine the attitude of Americans toward taxes in general and refunds in particular, GOBankingRates conducted a survey of 1,000 Americans in early 2022. The results were very insightful in terms of the size of tax refunds that Americans receive and the commonality of getting a refund in the first place. Here are some of the highlights, along with a quick overview of how tax refunds really work.

Social Security Payment Schedule 2022: What Dates To Watch Out For
Find Out: 50 Ways You’re Throwing Money Away

What Type of Refunds Do Respondents Expect?

Well over half of the respondents to the survey said they expected sizable refunds of at least $1,000 in 2022, with over 28% expecting a refund of at least $2,000. The largest single response was a refund in the $501 to $1,000 range, as indicated by 16.3% of respondents, but almost the same amount, 15.8%, expected refunds of over $3,000. Only 15.1% indicated they expected no refund at all.

Make Your Money Work

How Will Respondents Spend Their Tax Refund?

One of the most encouraging sections of the survey was when respondents were asked what they planned to do with their tax refunds. While some may view a tax refund as a windfall to be spent on a blow-out party or some extravagant luxury, the vast majority of respondents had a solid financial plan for their refund. In fact, only 10.6% indicated they would spend their refund on travel, while 19.6% said they would “treat themselves.” 

That means that less than one-third of respondents indicated they would use their refunds for entertainment or nonessential splurges, which might surprise some. The highest individual response, by a whopping 44.6% of respondents, was that they would put it in savings, followed closely by the 38.20% indicating they would pay bills. Another 37.40% indicated they would pay off debt. All in all, respondents seemed to be doing the prudent thing with their refunds by saving or investing that money, or paying down debt. 

Make Your Money Work

Why Might the 15% of Respondents Not Expecting a Refund Be Smart Financial Strategists?

Although using a tax refund to pay down debt or otherwise save or invest the money is a good strategy, perhaps the wisest move of all would be to not get a refund in the first place. Why is that? Because a tax refund essentially amounts to a tax-free loan to the federal government. 

Think about it this way — if you’re getting a tax refund, it means that you overpaid the amount of tax you owed throughout the course of the year. In other words, you gave the federal government money that you didn’t owe all year. The government used that money all year, free of charge, then paid it back to you without giving you any additional interest. If you had simply kept that money in your pocket all year, you could have invested it and earned a real return on it, perhaps even 10% or more. 

When seen in this light, many Americans might change their tune when it comes to wanting a tax refund. But the problem is that it’s hard to get past the raw emotion of receiving a big check back when you file your taxes every year. 

What To Do If You’re Sick of Loaning the Government Free Money

The good news is that even if you have gotten big tax refunds in the past, you can change your behavior and eliminate your refunds going forward. But first, you have to get over the mental aspect of the change. By avoiding a refund, you are not giving up money that’s owed to you — you are simply keeping it from the start. If it helps, you could perhaps set aside a small portion of every paycheck into a savings or investment account, rather than paying it out in taxes. Then, by the end of the year, you’ll have built up a small (or large) sum of money that will feel like a tax refund to you — but hopefully, you’ve been earning interest on that money all year. 

Make Your Money Work

To accomplish this, all you have to do is tell your employer to decrease your withholding rate by filling out a new W-4. Your employer will then automatically withhold less money from your paycheck. Not only will you avoid giving the government a tax-free loan, but you’ll notice your paychecks get larger. Just be sure to do the right thing and save or invest that extra money — or use it to pay down debt — rather than spend it. 

More From GOBankingRates

About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.

Best Bank Accounts of July 2022

Untitled design (1)
Close popup The GBR Closer icon

Sending you timely financial stories that you can bank on.

Sign up for our daily newsletter for the latest financial news and trending topics.

Loading...
Please enter an email.
Please enter a valid email address.
There was an unknown error. Please try again later.

For our full Privacy Policy, click here.