April showers bring…tax refunds.
If you’re like the majority of Americans, you can expect to receive a tax refund this year. Despite job losses from COVID-19 in 2020, data from a survey of more than 2,900 U.S. adults finds at least two-thirds expect to receive a refund. This is nearly equivalent to last year’s expectations when 68% of working Americans believed they would receive a refund from the 2019 tax year.
Unlike data in recent years, the survey reveals some key differences in the ways people intend to use their tax refund.
Less Vacations, More Staycations
Paying off debt and saving are the top two things to do with a tax refund, remaining steady year-over-year. However, this year more people are planning to spend their tax refund on home improvement projects–a 33% increase from the past two years. Unsurprisingly, less people will use their refund for a vacation. That’s 33% less vacationers than 2020, and 50% less than 2019.
The data go hand-in-hand with current home improvement trends. Significantly more homeowners are investing in home improvement as the result of COVID-19 and staying at home (find out which retailers are in the lead).
Debt Reigns Supreme
As CivicScience data show time and time again, paying down debt is THE thing to do with any extra money you might have at your disposal. That goes for the next round of stimulus checks and it’s also true for tax refunds. Close to one-third of adults who plan to receive a refund will be using it to pay off debt, while one-quarter plan to put the refund aside (save it).
Even among homeowners with refunds, only 15% will put their refund toward home improvement. Whether a homeowner or a renter, paying down debt still remains the number one tax refund destination for Americans.
Current data show that among U.S. adults, credit card debt is the most prevalent kind of debt (42%), followed by mortgage (39%), auto loan (35%), student loan (15%) and home equity debt (8%).
It’s a no-brainer that people who use their refund to pay down debt are more likely to be in debt. However, there are some interesting nuances:
Student loan debt: half of those with student loan debt will use their refund to pay down debt. They are also 88% less likely to save their refund than those without student debt. For college graduates, carrying the weight of the cost of their education is a primary driver for putting tax refunds towards debt.
Credit card debt: in comparison, 43% of people with credit card debt will put their refund towards debt, whereas people without credit card debt are more likely to save their refund.
Mortgage debt: the percentage of people choosing to spend their tax refund on debt is smallest among those with mortgages. Those with mortgage debt are the most likely debtors to use their refunds on home improvements.
Age and debt: adults ages 35 to 54 are the most likely to use their refund to pay off debt, as well as to go shopping and take vacations. Those ages 55 and older are the most likely to save their refund or use it for home improvement projects. Interestingly, even though paying down debt ranks highly among youngest adults (ages 18 to 24), they are also the most likely to invest their tax refund. This ties in with findings indicating that Gen Z is feeling more bullish about investing than older adults.
Income and debt: those earning $25-$50K per year are the most likely to use their refund to pay off debt. In comparison, those earning $50-$100K per year are the most likely to save their refund. Those earning $150K and above are the most likely to invest their refund.
To summarize, here are the key takeaways:
- The number of people who plan to receive a tax refund hasn’t changed significantly.
- More people are using their refund for home improvement, less for vacations.
- Using tax refunds to pay down debt is the most popular option. Student loan debt is a primary driver for putting tax refunds towards debt.
- Gen Z are the most likely to invest their tax refund.
Want more tax trends? Check out this infographic for interesting insights about taxes and refunds this year.