How Americans are Using Their Tax Refunds

Paying Down Debt, Saving Priorities Among Those Who Withhold More

Date: March 28, 2011
Contact: Paul Golden 303-224-3514, [email protected]

DENVER—Seventy-seven percent of taxpayers received refunds last year and according to the Internal Revenue Service (IRS) the average refund was about $3,1001. But are Americans using the annual windfall to their greatest advantage?

According to an early February online poll commissioned by the National Endowment for Financial Education (NEFE) and conducted by Harris Interactive among 2,469 U.S. adults ages 18 and older, 49 percent of those who withhold more from their paychecks to receive a larger refund and expect a refund this year say they plan to pay down debt and 44 percent plan to put the money toward savings.

Smart Uses for Your Tax Refund

  • 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 card. For help on dealing with debt, click here.
  • 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.
  • 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.
  • 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.
  • 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.
  • 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.

Some filers receive tax refunds unintentionally based on their withholding decisions. For others, a large tax refund is part of their financial plan. The NEFE survey finds that 30 percent of filers intentionally withhold more from their paychecks so they can receive a larger refund when they file their taxes. New Jersey resident Sommer Keller Zakrzewski incorporates a tax refund into her overall financial plan.

If we changed our withholdings, I think it would be spent easily," says Zakrzewski, an unemployed mother of two. She elects to receive a refund, because she knows she will spend it wisely—on bills.

Conventional advice says receiving a tax refund is like letting the IRS have your money interest-free all year," says Brent Neiser, CFP®, senior director of Strategic Programs and Alliances for NEFE. "But for most people, it makes sense to take a larger refund." Neiser says Americans 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," says Neiser.

According to the NEFE survey, among the respondents who withhold more from their paychecks to receive a larger refund, 9 percent stated they are likely to spend the money without knowing for certain where it goes, while 26 percent of those who choose to have more money in their paychecks instead of a larger refund are likely to spend the money mysteriously.

Additionally, the NEFE survey finds 14 percent of filers withhold less so they receive more money in each paycheck resulting in a smaller or no refund when they file their taxes. Among this group, 42 percent use the money to pay down debt and 37 percent put the additional money into savings. Twenty-one percent of filers try to adjust their withholdings so they do not have to pay or do not receive a refund.

Receiving Your Refund

When it comes to tax season, most people experience anxiety. In fact, the NEFE survey finds 74 percent of filers have some cause of worry about completing and filing their taxes. Not surprisingly, 36 percent say they are worried about owing money. But nearly three in 10 (29 percent), say they are worried that they won’t receive the highest possible refund because they, or someone filing their taxes on their behalf, will do something wrong. Getting the most in terms of your refund is important. What you do with it is equally important.

If you are due a tax refund, there are several ways you can elect to receive your money, some of which will affect what you can do with your refund. Before you file, consider each choice and be realistic about how you would use it.

Electronic deposit: However you file your return, you can request your refund to be directly deposited into a bank account. A separate NEFE survey, conducted online in late February by Harris interactive among 2,049 U.S. adults ages 18 and older, finds the majority (75 percent) would prefer funds automatically deposited into an account.

You even can request your refund to be allocated among up to three different accounts, such as checking, savings and a retirement account," says Neiser. (You have to file Form 8888, "Direct Deposit of Refund to More Than One Account," for that option.) If you file electronically, the money should reach your account(s) within seven to 10 days; if you file a paper return, it takes four to five weeks.

Paper check: Twenty-one percent of U.S. adults would prefer to receive a paper check if they were to receive a refund. "It can take up to six weeks to receive your refund this way," says Neiser. "Although this seems like a long time to wait, it does provide more time to think about and plan what you can do with the check, rather than making a snap decision."

The NEFE survey finds that 50 percent of those who would prefer a check in the mail do so because it doesn’t require them to give out their bank account information.

Debit cards: Another option is receiving your refund via debit cards, which are loaded with your tax refund money within two weeks of filing. This may be an attractive option if you don't have a bank account, but a debit card gives you fewer options:

Refund anticipation loans: If you choose a refund anticipation loan, you will get your money right away, but it could come at a very high cost.

  • You will be subject to a significantly high interest rate.
  • You also may be charged a filing fee and a same-day processing fee, which can add up to hundreds of dollars.
  • You could end up in debt and unable to pay back the loan if you do not get the refund amount you were planning on.

However you choose to receive your money, check the status of your refund by:

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

You will need to supply your Social Security number and the exact amount of the refund indicated on your return. For more tax tips on filing your taxes and receiving and spending your refund, visit

Survey Methodology

The first survey was conducted online within the United States by Harris Interactive on behalf of NEFE from February 9-11, 2011, among 2,469 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

The second survey was conducted online within the United States by Harris Interactive on behalf of NEFE from February 28-March 2, 2011, among 2,049 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.

1Internal Revenue Service (IRS),, 2011.




  • Paul Golden

    Media Relations Director

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