1 in 3 Americans Don’t Expect a 2023 Tax Refund: Why This Could Be a Good Thing
GOBankingRates’ recent survey found that approximately 1 in 3 Americans don’t expect to get a tax refund this year. While this might initially seem unfortunate, it could actually be a good thing in certain cases. After all, it could be a sign of efficient tax planning throughout the year.
See: Trump-Era Tax Cuts Are Expiring — How Changes Will Impact Retirees
Read: Owe Money to the IRS? Most People Don’t Realize They Should Do This One Thing
Here’s what people expect this year when it comes to their tax refund, why not receiving a refund might be a good thing and also why it might be better to get one.
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What People Expect To Get as a Tax Refund This Year
According to our survey, here’s what people expect as far as refunds:
18% = $0.01 to $500
15% = $501 to $1,000
10% = $1,001 to $1,500
5% = $1,501 to $2,000
4% = $2,001 to $3,000
9% = $3,001+
35% = no refund
Of those who do think they’ll get a refund, approximately 33% of respondents think it’ll be for $1,000 or less. Around 24% of people believe they’ll receive upwards of $1,000.
For filers who expect to get a refund, 28% of respondents said they plan to use it for everyday bills or to pay off debts. Another 30% of people intend to use the money for savings, investments or charitable donations. The rest plan to travel or treat themselves with the money.
Discover: Billionaires vs. the Middle Class: Who Pays More in Taxes?
Why Not Receiving a Tax Refund Is a Good Thing
So, what about the 1 in 3 Americans who don’t expect to get a refund at all? If you’re one of them, here’s why not receiving a tax refund could be a good thing.
It’s a Sign of Efficient Tax Planning
“Not getting a tax refund means you’ve optimized your withholdings, giving you immediate access to your earnings for investments or debt repayment rather than offering an interest-free loan to the government,” said Sean Lovison, CFP, CPA, and founder/lead planner at Purpose Built Financial Services, LLC. “It’s a sign of efficient tax planning.”
On the note of giving the IRS an interest-free loan, here’s what Roxanne Hendrix, a certified public accountant and tax expert with JustAnswer, said:
“Not every taxpayer is entitled to a refund depending on their withholding or tax situation. Not getting a refund at the end of the year means that your withholding during the year was spot on and you have not been giving the IRS an interest-free loan.”
The IRS doesn’t pay interest on tax refunds, so people who do expect to get a refund are essentially giving them free money throughout the year. If you don’t receive a refund, it could mean more money in your account that you can use for other things, like investments in tax-advantaged accounts.
You Can Use the Money To Earn Interest
Rather than overpaying the IRS and receiving a refund later, you could use your money more effectively throughout the year to earn interest.
“You can always invest that money or park it in a HYSA to earn some interest rather than paying it into the IRS throughout the year,” Hendrix said. “Best practice is to have it as close to zero as possible at the tax return filing so that you do not owe much to the IRS and you have not overpaid your taxes that year.”
It Means More Financial Stability Throughout the Year
If you’re not due for a refund, it could also mean more money in your pocket for everyday expenses. And if you’re struggling to afford the high cost of living, having that money now could be much more useful than waiting until a check comes in the mail later.
“Many people today are struggling with higher living costs due to inflation. If you typically get a large tax refund and your income situation hasn’t changed much from previous tax years, it could pay to collect more of your earnings upfront instead of forcing yourself to wait,” Hendrix said. “Doing so could buy you more financial freedom [and] avoid loaning the government too much money for nothing in return.”
You’re Not Paying More Than You Have To
Similarly, not getting a tax refund could be a positive since it means the government hasn’t been taking more from your hard-earned money than they’re legally entitled to.
“Anyone who’s looked at their check stub with dismay after noticing the big bite taxes take out of your income should be glad whenever you don’t get a refund,” said Armine Alajian, CPA and founder of the Alajian Group. “That’s because a big refund indicates that too much was pulled out of that paycheck and withheld from your earnings over the course of the year.”
Thomas Brock, CFA®, CPA, and an expert contributor for Annuity.org, added, “In most situations, getting a large tax refund is suboptimal. It reflects either excessive federal tax withholdings (for employed individuals) or unnecessarily high estimated tax payments (for self-employed individuals).”
Why Not Receiving a Tax Refund Is Less Than Ideal
Of course, there are also cases when not receiving a tax refund is less than ideal or a sign of poor financial planning.
It Could Lead To More Financial Strain
If you’re expecting to get a refund, or if your refund is smaller than you’d hoped, it could lead to financial stress — especially if you needed that money to cover certain expenses.
“Missing out on a tax refund can impact those who view it as a forced savings plan for major expenses or savings goals,” Lovison said.
If that’s the case, it shows the need for more disciplined or better budgeting and savings practices throughout the year.
You’ve Missed Important Deductions or Tax Credits
If you don’t get a refund when you were expecting one, it could be a sign of a problem with your tax return. In particular, it could mean that you’ve missed certain tax credits you should have received and that your tax liability is higher than it needs to be.
“Not getting a refund may mean that you are not getting the credits you may qualify for, so make sure to use a qualified tax preparer to file your tax return,” Hendrix said.
It Could Mean You Owe More Than You Expected
If the reason you’re not getting a refund is because you owe money to the IRS at the end of the year, that’s less than ideal.
“Owing a lot of taxes isn’t ideal either — it can be a sign that you haven’t had enough withheld from your check, and can feel like a nasty surprise when tax time comes around,” Alajian said.
It Might Be Better To Neither Receive Nor Owe Money
Unless you need the money, either during the year or in the form of a tax refund, you might be better off neither receiving nor owing much to the IRS at tax time.
“The ideal situation for most people is to adjust your withholding so that the deductions from your paycheck will cover what you actually owe, and not much more,” Alajian said. “That way, you might get a modest refund or owe a manageable amount, and you’ll be able to accurately budget based on your true income.”
GOBankingRates surveyed 1,005 Americans aged 18 and older from across the country between Jan. 23 and Jan. 26, 2024, asking fourteen different questions: (1) How do you plan on filing your taxes for this year?; (2) When do you expect to file your taxes this year?; (3) How much do you expect to receive in a tax refund?; (4) What do you plan to do with your refund?; (5) Do you feel confident you are receiving all the deductions you feel qualified for?; (6) Do you believe your tax dollars are being spent effectively?; (7) Do you believe you are paying too much, too little, or a fair share in taxes?; (8) Have you ever been audited before?; (9) Who will/would use your tax dollars the best?; (10) How much is the standard deduction for a single filer (and married filers) in 2024?; (11) What concerns you the most about Tax Day?; (12) Do you expect your tax refund this year to be more or less than last year?; (13) What do you understand the least about your taxes?; and (14) What would you rather be doing than your taxes? (Select all that apply). GOBankingRates used PureSpectrum’s survey platform to conduct the poll.
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This article originally appeared on GOBankingRates.com: 1 in 3 Americans Don’t Expect a 2023 Tax Refund: Why This Could Be a Good Thing
