Tax Season Insights: More Consumers Plan to Save Their Tax Refund This Year, Cut Back on Spending

With about three weeks to go until the April 18th filing deadline, it’s time to check in on the latest tax data. Earlier this month, CivicScience released key trends among American taxpayers in our teaser report. Here are three leading insights from our new full-length Tax Season Report. This year, tax season is all about inflation, practicality, and distrust.

1. U.S. consumers who received a smaller tax return than anticipated skew toward lower-income earners.

With an economy that is increasingly expensive to navigate, many Americans find their tax refunds are not providing the level of relief they initially expected. Close to 1-in-5 U.S. adults who’ve already filed their taxes say they received less money back than expected. Households earning less than $100K per year are disproportionately represented among these consumers, with 41% earning under $50K yearly.

2. In a shift of priorities, more consumers expecting a refund now plan to set it aside.

How Americans plan to use their tax refunds has undergone a shift in recent weeks. Last month (February), paying off debt was the most commonly planned approach, but according to the latest CivicScience data, an increasing number of taxpayers are now looking to set aside/save their refunds. This strategy now rivals paying off debt, with 28% of people intending to do so – a three percentage point increase from last month. Far more Americans plan to put their refund toward debt or savings this year than last year.

In terms of spending, consumers are less inclined to utilize their tax refunds for vacations and shopping this year compared to last year, while the same percentage will use theirs for home improvements. Shopping remains the least common planned usage and has seen a notable decrease of three percentage points from last year.

3. Clothing and dining out are among the most likely areas taxpayers plan to cut spending.

Due to continued higher prices across the board, Americans have been compelled to reduce their expenses, regardless of whether they anticipate owing taxes or receiving a refund. Unsurprisingly, consumers who expect to owe on their taxes are more likely to cut spending in the majority of categories CivicScience tracks.

Clothing and dining out are the top categories where both groups have already reduced their spending or plan to do so. However, consumers who expect to owe taxes are more likely to reduce their spending on toys, hobbies, and gifts specifically, with an eight percentage-point gap over those who anticipate a refund (46% versus 38%). Interestingly, those who expect to owe taxes are less likely to implement cost-cutting measures for travel and dining out than those who expect a refund, but are more likely to cut back on grocery spending.

Additional tax season insights:

• Adults aged 35-44 are the most likely demographic to plan to use their tax refund to pay off debt.
• Those with an annual household income between $50-75K are the most likely to set their tax refund aside.
• Americans ‘somewhat’ or ‘very concerned’ about climate change are much more likely to trust the federal government to spend tax revenue wisely compared to those who are ‘somewhat’ or ‘very concerned’ about illegal immigration (45% to 26%).
  
  Discover more in-depth insights in the 2023 Tax Season Report. Clients receive this report in full and it can be purchased individually. Download a free preview of the report here.