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Happy Returns: Tax Refund Windfall Expected for US Families

Happy Returns: Tax Refund Windfall Expected for US Families . / Credit: Income tax refund image via Shutterstock

Nearly half (40 percent) of U.S. households live paycheck-to-paycheck, new research shows.  That means that this year's estimated $230 billion in federal tax refunds will deliver a significant financial windfall to the average American family and help fuel the U.S. economy's rebirth. Especially since approximately $140 billion will be in consumers' pockets by Feb. 15.

The average tax refund in 2012 was $2,700, equaling more than a month's worth of income for two-thirds of taxpayers, or more than three months of groceries for the average family of four, according to the American tax and financial center at TurboTax, a provider of tax preparation software.

Refunds are the primary reason taxpayers file tax returns by mid-February.  Approximately 84 percent of taxpayers filing in January through Feb. 15 receive a refund, compared to only half of those who file in April, Turbo Tax said.

"A federal tax refund is the most important financial moment of the year for many families," said Bernie McKay, director of the American tax and financial center at TurboTax. "Low-income households use tax withholding and the subsequent refund almost like a savings fund, using the money to pay down debt or to cover everyday living expenses."

Tax refunds take on even greater significance when it comes to holiday spending and credit card debt. In 2012, Americans planned to spend an average of $854 during the holidays, adding to the average consumer credit card debt of $8,721, Turbo Tax said. Consumers typically make the largest dent in their credit card debt in the first quarter of the calendar year, powered by the increase in income due to tax refunds. The average tax refund could cut almost one-third of the average credit card debt.

According to TurboTax, 42 percent of early tax filers plan to use their refund to pay down debt and cover the costs of rent, food and utilities. Another 25 percent will save at least some of their tax refund.

"Taxpayers can use a portion of their refund to pay down debt as a smart first step to taking control of their finances," McKay said. "And it’s encouraging that at least a quarter of Americans say they plan to save at least some of their tax refund. Tax refunds are an excellent way to jumpstart savings and put money away for retirement, education or a rainy day."

Reach BusinessNewsDaily senior writer Ned Smith at nsmith@techmedianetwork.com. Follow him on Twitter @nedbsmith.

Ned Smith
Ned Smith

Ned was senior writer at Sweeney Vesty, an international consulting firm, and was Vice President of communications for iQuest Analytics. Before that, he has been a web editor and managed the Internet and intranet sites for Citizens Communications. He began his journalism career as a police reporter with the Roanoke (Va.) Times, and was managing editor of American Way magazine and senior editor of Us. He was a Captain in the U.S. Air Force and has a masters in journalism from the University of Arizona.

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