Fears Abound as Tax Deadline Looms

Savings, Paying Down Debt Priorities for Those Who Receive Refunds

Date: April 12, 2013

Contact: Paul Golden 303-224-3514, [email protected]

DENVER—With the tax deadline approaching Monday, many late filers who procrastinate are worried about more than just owing money. According to a poll commissioned in April by the National Endowment for Financial Education and conducted online by Harris Interactive among 2,232 U.S. adults ages 18 and older, 58 percent of those who have already filed or soon will be filing their taxes this year say worry comes with the process.

Among those, 26 percent say they were/are concerned over the possibility of owing money. Yet 20 percent were/are worried that they did/do not have all of the appropriate paperwork needed to file and another 18 percent report anxiety over preparing their return incorrectly, which may lead to them having to do it again or face the possibility of an audit.

6 Smart Uses for Your Tax Refund

  1. Pay down debt. One of the smartest things you can do with your tax refund is to pay down credit card debt. Start with the card that has the highest interest rate, and if there is money left over, move to the next account. For help on dealing with debt, click here.
  2. Start an emergency fund. Put a chunk of that refund into a bank account so you will have a reserve to pay for unexpected expenses. Strive toward three to six months’ worth of expenses, but if that seems to daunting, there is a positive benefit in having as little as $500 in your savings. Use this calculator to help you figure out how much you need.
  3. Save for the future. Invest your refund in an Individual Retirement Account (IRA). Money set aside in an IRA will grow tax-free, and the contribution may be deductible. If you invest in a Roth IRA, the account will be completely tax-free after age 59-1/2. Learn more about tax-advantaged retirement savings accounts here.
  4. Pay for needed repairs. If money has been tight and you have put off needed home repairs or work on your car, use your refund to foot the bill.
  5. Prepay bills. Use your refund to prepay your mortgage, car loan or student loans, or even to pay your annual insurance bill. Just make sure there are no prepayment penalties.
  6. Splurge a little. If your borrowing and saving strategies are in good shape, go ahead and use your tax refund for a big purchase you have been putting off, such as a vacation or a new television or other pricey technology. Find tips for making a major purchase here.

“One of the best ways to alleviate fear during tax season is to maintain a complete tax file throughout the year—even a shoebox will work,” says Brent Neiser, CFP® and senior director with NEFE. “It’s common for people to feel that they do not have all of the necessary documents to file and that ultimately they will do something wrong that could lead to an audit down the road. But if you create a checklist of the tax-related tasks you must do and incorporate documents into a file as you receive them, you will increase your confidence when it comes time to file your return.”

The average tax refund last year was nearly $3,000 according to the Internal Revenue Service (IRS), but Americans are worried that they are leaving money on the table. The NEFE survey finds 19 percent are concerned that they won’t get the highest refund possible because they did something wrong, which would shortchange goals like building a savings account or paying down debt.

“Traditional advice says receiving a tax refund is like lending the IRS your money interest-free all year,” says Neiser. “But it’s important to note that for many people it makes sense to take a larger refund so they can plan how to use it instead of trying to keep track of a few extra dollars every paycheck.”

The NEFE survey finds that among those who have received a refund or expect to receive a refund, 52 percent say they typically put the money they receive from their tax refund into savings and 22 percent say they typically plan to pay down credit card debt.

Neiser says people should base their withholding decisions on how they will behave with their money. “If you’re afraid you’ll waste that extra money each pay period, electing to receive a refund could be a wise strategy—as long as you use the lump sum carefully toward financial goals,” he says.

If you are expecting money back you can check the status of your refund by:

  • Calling the IRS Refund Status Hotline at 800-829-1954.
  • Using the online “Where’s My Refund?” tool on the IRS website.
  • Downloading the free IRS2Go phone application, for iPhone or Android phones.

You will need to supply your Social Security number and the exact amount of the refund indicated on your return to track the status of your refund.

For more tax tips on filing your taxes and receiving and spending your refund, visit www.smartaboutmoney.org.

Survey Methodology

The survey was conducted online within the United States by Harris Interactive on behalf of NEFE from April 3-5, 2013, among 2,232 adults ages 18 and older. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology (including weighting variables) click here.

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Contacts

  • Paul Golden

    Media Relations Director

    Direct: 303-224-3514
    Cell: 303-918-3620
    [email protected]

  • Patricia (Pat) Seaman

    Senior Director of Marketing and Communications

    Direct: 303-224-3538
    [email protected]

Contacts

  • Paul Golden

    Media Relations Director

    Direct: 303-224-3514
    Cell: 303-918-3620
    [email protected]

  • Patricia (Pat) Seaman

    Senior Director of Marketing and Communications

    Direct: 303-224-3538
    [email protected]