In theory, this would allow taxpayers to benefit from putting their money to work for them sooner and therefore not miss out on potential returns. This might be true if individuals invested that extra pay, but recent research from MoneyRates.com shows this isn’t the case.
According to the survey, while 31% of people who prefer refunds spend most of that money when they receive it, 46% of those who minimize withholding spend the extra money they get in their paychecks. This means 69% of those who prefer a refund save at least half of that refund, compared with 54% who save the extra money they get each paycheck from a minimized withholding level. MoneyRates.com says this suggests people find it easier to save money when it comes to them in large chunks. When it arrives in small incremental pieces, it is too easy to fritter away the extra few dollars.
The MoneyRates.com survey found 68% of respondents who are in a position to adjust their withholding prefer to receive a refund, compared with 32% who prefer to minimize withholding.
How Americans Use Their Tax Refunds
According to a recent survey by financial services firm Edward Jones, 52% of Americans will spend their annual tax refund on necessary expenses such as loans, credit cards and other household expenses. Thirty percent plan to put the money into savings, and 8% say they will invest it.
The survey found respondents between the ages of 55 and 64 are most likely to save their refund (43%). Only one quarter of respondents ages 45 to 54 plan to save their refund.
The survey’s youngest respondents, those between 18 and 34, are most likely to put their refund checks to use on “fun” things such as clothes, entertainment and restaurants (12%). This compares to just 5% of those 65 and older who would do the same.
Edward Jones found household income has the greatest influence on Americans' decision to save, spend or invest their tax refund in 2014. Respondents with the lowest household income (those making less than $35,000 per year) are the most likely to spend their tax refund on necessary expenses (61%)—compared to 37% of those with the highest household income ($100,000 or more). Interestingly, the wealthiest respondents are not the most likely to invest their refunds; those with household incomes between $50,000 and $75,000 are.
In general, households with children are the most likely to spend their refunds on everyday expenses, especially those with older children. Americans with no children are the most likely (10%) to spend their tax refund on something “fun,” whereas only 1% of those with children ages 13 to 17 are willing to splurge.
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