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A Bankrate survey found that 45% of U.S. tax filers expect to receive a federal tax refund in 2023 — up from 40 percent last year. Although refunds are expected to be smaller this time around, the IRS still puts the average individual tax refund at $3,140, which isn’t pocket change either.
If you’re expecting a tax refund this year, paying down debt, saving it for a rainy day or using it to boost your home equity are some smart ways to put that money to good use.
Tax return statistics
- Over 36.8 million Americans have filed their federal tax returns in 2023 — a 2.6% increase from last year.
- Out of those, roughly 36 million filed their taxes electronically.
- When it comes to preparing their taxes, Americans prefer the DIY approach, with 57% reporting filing electronically without the help of a tax preparer.
- The average individual federal tax refund is $3,140 — 11% less than last year’s average, which was $3,536.
- Most taxpayers receive their federal tax refunds within 21 days or less after filing electronically.
- 36% of U.S. adults who planned to file a tax return expect to do so by February of 2023, while 25% and 14% plan to file by March and April, respectively.
- 45% of tax filers expect to receive a federal tax refund in 2023 — up from 40% last year.
- 43% of Americans expecting a tax refund say their refund is “very important” for their overall financial situation.
- One-third of filers expecting a federal tax refund worry that this year’s amount will be smaller than expected.
- Most Gen Zers (31%) expecting a refund plan on saving it. Meanwhile, the majority of millennials (25%), Gen Xers (33%) and boomers (32%) plan on using the funds to cut down debt.
Tax refund and financial security
If you are expecting a tax refund and don’t need the money for essentials, you can always use those funds to increase your financial security. This is especially true now that there’s a 65 percent chance that the U.S. economy will enter a recession in the coming months, making things financially challenging for millions of Americans nationwide.
1. Pay down debt
If you have high-interest debt, such as credit cards, which have an average interest rate of 20.34 percent, using your refund to cut down those bills is always a good idea. If you want to tackle multiple debts, however, one smart way to do this is by using a debt consolidation loan.
When you take out a debt consolidation loan, you’re essentially combining all your debts into a single loan, with one monthly payment and possibly a lower interest rate. This, in turn, will allow you to get out of debt faster, as more money will go toward paying off your principal balance instead of going towards interest.
A recent Bankrate survey found that 57 percent of Americans wouldn’t be able to cover a $1,000 emergency expense out of pocket, with over one-third saying their credit card balances actually exceed their savings.
If your emergency fund needs a little boost — or if you need to start building one from scratch — your tax refund could be just the seed capital you need. What’s more, since the Fed has been hiking interest rates over the last several months, some banks are paying APYs upwards of 4 percent for their high-yield savings accounts, which automatically translates to higher returns.
If you’re good on both the debt and savings front, you can also make your tax refund work for you by investing it. Stocks and real estate investments currently have the highest return on investment, with an average annual return of 13.8 percent and 8.8 percent, respectively. If you do the math, that’s more than double the return on investment you’d get if you just let your money sit on a high-yield savings account.
4. Pay for home improvements
The average homeowner spent about $18,000 in home renovations in 2021. Considering that this year’s average federal tax refund is over $3,000, that money could reduce how much you spend by 17 percent or more, depending on how big your project is.
5. Boost your home equity
If your tax refund is sizable enough, you could use it to prepay your mortgage, which can save you thousands on interest. For instance, according to Bankrate, if you have a $200,000 mortgage with a 6.5 percent interest rate, you could save up to $60,364 over the life of the loan, just by making one extra payment a year. Not only that, but you could pay off your home in roughly 24 years, instead of 30.
Frequently asked questions
How soon you get your refund will depend on several factors. These include your preferred method of filing and payment. The IRS states that 90 percent of taxpayers who file their tax return electronically and choose to receive the funds via direct deposit get their funds within three weeks or 21 days after their filing date. For those who file via paper, however, their tax refunds could take up to two months to show up, especially if they chose to receive the funds via check.
Tax season started on Jan. 23, 2023, but only 14 percent of taxpayers filed during that month, according to a Bankrate survey. Most taxpayers expect to file their federal tax returns between February (36 percent) and March (25 percent) of 2023.
A tax refund advance is a short-term loan that lets you borrow money against your upcoming federal tax refund. These loans typically come with a 0 percent interest and are offered through tax preparing companies from December through February.The main benefit of taking a tax refund advance loan is that you can get between $200 and $6,000 (depending on the company and your refund amount) within a couple of days after filing. Once the IRS issues your refund, your tax preparer will deduct the loan amount and deposit you any remaining funds. On the downside, these services aren’t free. You’ll be required to file your taxes through the company offering you the loan, which can set you back a couple hundred dollars.