Medical bills, food, investing and mortgages: How Americans are spending their tax refunds, stimulus
Medical bills, food, mortgages and investing. These are some of the things Americans plan to spend their tax refunds and stimulus checks on after many lost work or got hit with extra expenses during the coronavirus pandemic.
Catherine Carver, for instance, put all of her tax refund and stimulus toward lowering her medical debt. In 2019, she was diagnosed with Fragile X syndrome, a genetic disorder that causes a range of developmental problems. She’s had unexpected health issues come up during the pandemic requiring a few emergency room visits and physical therapy.
“My tax refund and stimulus checks have, unfortunately, been going 100% toward paying off debt,” says Carver, 30, who lives in Indianapolis and works as an assistant director at a state financial aid support center.
“At this point," she says, "every little bit helps.”
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Tax refund ‘crucial’ for stability
More than half of Americans say that receiving their tax refund is crucial for their financial stability, according to Credit Karma, which surveyed more than 1,000 adults in April. The data was given to USA TODAY exclusively.
About 47% of Americans say they plan to save their refund, and more than one-third plan to use the money to pay for necessities such as rent, groceries and other bills, the data shows. More than one-quarter say they will use the money to pay down debt.
Nearly 40% of respondents were unemployed at some point since February 2020 during COVID-19.
The financial story of the pandemic is a “tale of two cities” in which some Americans remained employed and socked away refunds and stimulus checks while others struggled and used the money to cover necessities, says Colleen McCreary, chief people officer at Credit Karma.
“For most Americans, their tax refund is the biggest paycheck they’ll receive every year,” McCreary says. It "creates a lot of anxiety" when they're forced to use their refund to pay for necessities and can’t get out of debt or save.
The Internal Revenue Service has issued nearly 81.5 million income tax refunds, the average amount totaling $2,865, according to data from the agency through April 30. Roughly 64% of people either had the same or a bigger federal tax refund this year compared with 2020, according to Jackson Hewitt.
Saving and investing
While millions of people rely on their refunds to help pay off bills and other expenses, others used the money to invest for the first time.
Stephanie Hampton, 24, is one of those new players in the market.
She graduated with a theater degree in 2019 and was saving money to move to New York City, where she hopes to become a Broadway actor.
When the pandemic hit last spring, she was laid off from her hotel job. To keep expenses down, she has been living with her parents in Hamilton, New Jersey. In the fall, she got a job as a bookseller at Barnes & Noble.
Hampton, who received a $1,000 tax refund and a $1,400 stimulus check, put the cash in savings, then placed a portion of the money in an E*TRADE brokerage account to build a nest egg.
“I’m in a better financial position now than I’ve ever been in my entire life,” says Hampton, who has been steadily paying off her credit card, building savings and maintaining a good credit score. "So I started investing in the stock market," she says. "It’s definitely been a learning experience.”
About 13% of Americans plan to use their tax refunds to invest, according to Credit Karma.
“As terrible as this pandemic has been, my family has been extremely blessed,” Hampton says. “We didn’t have to worry about bills or where we were going to live.”
Some Americans face refund delays
Others haven’t been as fortunate.
Stanley Leary, 59, is still waiting for his tax refund after he filed his return in February. He expects to receive a refund of more than $10,000.
“It’s a huge deal. This delayed tax refund would cover at least two to three months of bills,” says Leary, who lives in Roswell, Georgia. He is a self-employed freelance photographer and videographer.
Typically, the IRS sends most refunds within 21 days of taxpayers filing their returns. But for some early filers, the wait for a tax refund has been six to eight weeks.
“The IRS hasn’t told Americans when they’re going to wrap this up,” Leary says. “The tension will grow every day and every week going forward if we’re not paid.”
The IRS is holding 29 million tax returns for manual processing, contributing to more refund delays than are typical in a normal filing season. The slow processing is due to sweeping tax code changes, limited resources, outdated IT systems and a backlog of unprocessed 2019 paper tax returns, according to Erin Collins, the national taxpayer advocate.
About 59% of taxpayers say they have received their federal tax refund in either the same amount of time or faster than last year, according to Jackson Hewitt.
“More taxpayers this year are waiting longer to get their tax refunds than historically,” says Mark Steber, chief tax information officer at Jackson Hewitt. “But having said that, many of them are getting their money fast and efficiently. So while the number is much larger than last year, the vast majority of taxpayers are successfully filing on time and getting their refunds.”
The total number of refunds issued this year is down 5.8% – or almost 5 million returns – compared with the same time a year ago, according to IRS data as of April 30.
Americans spent stimulus on necessities
Tim Gresham, an Army veteran who lives in Newnan, Georgia, says he and his wife live off $794 a month with his disability insurance. He unexpectedly had multiple heart surgeries this year, and the couple fell behind on bills.
They put all three rounds of their stimulus checks toward food, clothes and other essentials.
“It’s really depressing. The struggle is real,” says Gresham, 55. “The stimulus checks were vital. If it wasn’t for those, my wife and I wouldn’t have been able to get by.”
More than 80% of Credit Karma respondents say they received at least one stimulus check this year. About 40% say they used the money to pay for necessities such as rent, groceries and other bills, while nearly 30% used the money to pay down debt. Roughly 41% saved the money.
“I don't like taking things for free, but right now I don’t have much of a choice,” Gresham says.
Leary, the photographer and videographer, received all three rounds of the direct payments, which he put toward his mortgage.
“We’ve had help from family, friends and even someone who sent us money anonymously to help directly with our mortgage,” Leary says. “We weren’t 100% relying on the government for support, but we sure did need the help.”
This article originally appeared on USA TODAY: Where's my tax refund? How Americans spent refunds and stimulus checks
