This year, tax refund season may not translate to a boost in consumer spending for retailers. Instead of spending their tax refund dollars, half of consumers plan to use their tax refund to pay down debt, according to the National Retail Federation (NRF).
Findings from the NRF’s recently-released annual tax refund survey showed that 49 percent of those getting a tax refund will place that money into their savings accounts instead of putting it back into the economy.
The NRF says that figure is the highest in the organization’s 12-year history of conducting its survey, edging out last year’s total of 48 percent of participants who said they intended to save their tax refunds.
Saving is a priority for many consumers
Matthew Shay, president and CEO of the NRF, noted that consumers are faced with a choice each year when tax return season rolls around.
“Tax return season is a time when consumers plan and prioritize financially, whether it is paying down debt or saving for a rainy day,” he said.
“With the passage of tax reform and the expectation of more disposable income, we expect to see consumers prioritizing how and when they spend their hard earned dollars, especially during the back-to-school and holiday seasons.”
The recently passed tax law lowered the corporate tax rate from 35 to 21 percent. Although it lowered most individual income tax rates, it also increased the standard deduction, eliminated the personal exemption, and limited or eliminated a number of other deductions.
Where refunds are going
Of the 65 percent of taxpayers expecting a refund, the survey found:
49 percent will put the money straight into savings;
35 percent will pay down debt;
22 percent will spend it on everyday expenses;
12 percent will use the money for a vacation;
10 percent will “splurge” on dining out, trips to a spa, or apparel;
9 percent will invest in home improvements; and
8 percent will make major purchases ranging from a television or furniture to a car
Millennials are the least likely age group to use the extra cash to splurge on something fun, according to the poll of 7,657 participants. Many younger consumers said they intend to use their refund money to pay for daily expenses.
“Younger consumers are being more mindful about their hard-earned money, especially those 18-24 who have already filed their taxes this year, higher than any other age group,” Prosper executive VP of strategy Phil Rist said.
“Although this group is focused on allocating a portion of their refunds to savings, they are also more likely to use them for everyday expenses compared with any other age group.”