This year’s average tax refund exceeded $3,500, an increase of $700. Three out of ten people are concerned that their tax refunds will be insufficient this year due to rapidly rising inflation.
Tax refund season begins
“The nice thing about lump sums is that if you know you’re going to spend it nonetheless, you can save it for [that expenditure], and you don’t get into debt,” says one CFP. Tax refund season has begun: as of February 18, the IRS has distributed over 22 million tax refunds, each worth slightly more than $3,500, as per intelligence service data. Despite the increase, 29 percent of people are concerned that their tax refund will not go as far as it has in the past, according to new Bankrate data. Tax refunds used to be a once-a-year windfall.
Windfall tax occurs more frequently
Thankfully, fewer people are dependent on their tax refund to make ends meet this year.
According to new Bankrate data, only 36% of Americans expecting tax refunds consider them an offer of insight into their financial situation. This is a six-point drop from the previous year. Rossman implied the tax windfall is usually supposed to occur once a year. Still, things seem to be different this time as a couple of windfalls has occurred more recently, referring to government programs such as the three rounds of pandemic stimulus payments and the advanced child tax credits beginning in 2021.
Even if fewer consumers believe their tax refund will benefit their financial situation, the money will still make a difference.
Earlier in the pandemic, the personal savings rate, or the percentage of people’s income, spiked several times, and overall credit card debt decreased significantly, as reported by Grow Acorns.
Pay off your debt
Rising inflation is one of the main reasons financial experts, including Rossman, urge people to spend their tax refunds wisely this year more than ever. They may reconsider this year as everything becomes more expensive. According to Rossman, credit cards already have some of the highest interest rates of any financial product, and they’re likely to rise further once the Federal Reserve, the United States’ central bank in charge of interest rates, begins raising them in March.
Peggy Doviak, a certified financial planner and the founder of DW Wealth Management in Norman, Oklahoma, agrees that debt should be prioritized. Still, she doesn’t mind if people get creative with their tax refunds.
