For many Americans, a tax refund is no longer a windfall, but a critical lifeline for essential expenses. A new survey indicates nearly 60% view their refund as vital to financial health, not discretionary spending, with 58% reporting no financial improvement since last tax season.
While financial experts traditionally advise against large refunds, suggesting lower withholding for investment growth, the reality for many is that any extra paycheck money is absorbed by bills and unexpected costs. The survey results highlight that a smaller-than-expected refund would negatively impact 64% of taxpayers, with 1 in 5 facing severe hardship.
Most Americans plan to use their refunds to stabilize finances, cover living expenses (37%), catch up on bills (38%), or rebuild savings (43%). This financial pressure leads some to use refund advances or anticipation loans, despite expert warnings about high interest charges.
Despite the refund's importance, tax filing remains a source of stress. Anxiety, procrastination, and confusion are common. Top stressors include owing money, fear of mistakes, and the hassle of gathering documents.
The rise of side hustles and non-traditional income streams complicates tax preparation. While two-thirds of workers rely on W-2 jobs, nearly 30% earn income outside this traditional structure, including through freelancing and gig work. Unlike W-2 employees, individuals with self-employment income are responsible for remitting taxes themselves.
Filing taxes independently using software is common, driven by cost savings, though mistakes can be expensive. While 74% believe they understand their tax situation, one-quarter admit confusion. The average time spent on tax preparation is three hours annually.
Artificial intelligence is emerging as a potential tax tool, with 63% open to its use. However, security concerns regarding sensitive data and accuracy remain. Americans are most comfortable using AI to double-check work or explain tax jargon.
New tax deductions are available, including for tipped workers (up to $25,000) and overtime pay (up to $12,500 for single filers). Deductions for car loan interest on new American-made vehicles and for seniors are also in place, though many taxpayers are unaware of these changes.
For those who owe, nearly half would dip into savings, while others would rely on payment plans or credit cards. The IRS processed nearly 166 million returns last year, with the average refund around $3,167, a figure expected to rise.