The nation’s taxpayers will receive an estimated $230 billion in federal tax refunds this year, fueling the U.S. economy and delivering a significant financial windfall to the average American household. And approximately $140 billion will be in consumers’ pockets by Feb. 15, according to the American Tax & Financial Center at TurboTax.
Refunds are especially vital for the estimated 40 percent of U.S. households living paycheck-to-paycheck. In 2012, the average tax refund was $2,700, equaling more than a month’s worth of income for two-thirds of taxpayers or more than three months of groceries for the average family of four.
“A federal tax refund is the most important financial moment of the year for many families,” said Bernie McKay, director of the American Tax & Financial Center at TurboTax. “Low-income households use tax withholding and the subsequent refund almost like a savings fund, using the money to pay down debt or to cover everyday living expenses.”
Refunds are the primary reason taxpayers file tax returns by mid-February. According to research by TurboTax®, the nation’s leading tax preparation software from Intuit Inc. (Nasdaq: INTU), approximately 84 percent of taxpayers filing in Jan. through Feb. 15 receive a refund, compared to only half of those who file in April.
Holiday Spending Hangover
Tax refunds take on even greater significance in the face of holiday spending and credit card debt. In 2012, Americans planned to spend an average of $854 during the holidays, adding to the average consumer credit card debt of $8,721. Consumers typically make the largest dent in their credit card debt in the first quarter of the calendar year, fueled by the increase in income due to tax refunds. The average tax refund could cut almost one-third of the average credit card debt.
How taxpayers plan to use their tax refund
According to TurboTax, 42 percent of early tax filers plan to use their refund to pay down debt and cover the costs of rent, food and utilities . Another 25 percent will save at least some of their tax refund.
“Taxpayers can use a portion of their refund to pay down debt as a smart first step to taking control of their finances,” added McKay. “And it’s encouraging that at least a quarter of Americans say they plan to save at least some of their tax refund. Tax refunds are an excellent way to jumpstart savings and put money away for retirement, education or a rainy day. ”
About The American Tax & Financial Center at TurboTax
Established in November 2012, The American Tax & Financial Center at TurboTax provides objective and independent data and insights on tax and personal finance trends. The Tax Center is now available to provide taxpayers, policymakers and media with resources and expert commentary on the impact of taxes on U.S. consumers.
The center’s primary goal is to help Americans in understanding financial matters so they can make informed financial decisions. The center educates and advocates for individuals by helping them take ownership of their financial future. For more information, visit The American Tax & Financial Center at TurboTax at www.americantaxandfinancialcenter.com.
TurboTax is the nation’s No. 1 rated, best-selling, do-it-yourself tax preparation software. Available on desktop, online and mobile, TurboTax helped more than 25 million people last year keep more of their hard-earned money. For more information, visit the TurboTax press room, like us on Facebook at www.facebook.com/turbotax, follow us on Twitter at twitter.com/turbotax, or visit our blog, Tax Break: The TurboTax Blog, at blog.turbotax.intuit.com/.
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