Why Tax Refunds Are Extra Important to Americans This Year
The 2022 tax season is well underway, and though federal returns aren't officially due until April 18, there are extra reasons this year to file taxes early — especially if you expect a refund.
Thanks to a perfect storm of economic factors, those tax refund checks are going to be more important than ever for many people.
Americans are contending with the highest rate of inflation in decades, and wages, while rising for many, aren’t making gains fast enough to keep up. So people are scaling back on many big purchases — especially, cars, which have seen prices skyrocket — and hoping that a big tax refund will help ease the pain.
A new report from Capital One found that rising prices have prompted 38% of Americans to cut back on their spending habits, especially when it comes to discretionary expenses like restaurants and shopping. On top of that, roughly one-quarter of Americans have been unable to pay at least one bill in the last month. Amid all that financial uncertainty, roughly half of middle earners (households earning between $25,000 and $100,000 annually) and 57% of lower earners (households earning less than $25,000 annually) said their tax refunds would be very important or moderately important to their financial health in 2022.
According to a National Retail Federation survey, 59% of Americans expect to get a tax refund in 2022. As for what people will do with their refunds, there are noticeable increases this year for those saying they'll be paying down debt or simply saving the money — which are the two most popular ways to use tax refunds.
As of the week ending February 25 (the most recent data available), the IRS had processed more than 43 million individual tax returns. The agency has sent out some 29.7 million refunds worth a cumulative $103 billion. So far, the average 2021 refund check amounts to $3,473.
Tax refunds coming at just the right time
If you haven’t filed your taxes yet, it’s a good idea to do so as soon as possible. The IRS is facing serious backlogs and staffing issues that could delay your refund. If you need more convincing, here are some reasons why tax refund checks are coming at a critical time for many families in 2022.
Inflation
Prices rose at an annual rate of 7.5% in January — the largest jump since 1982. Inflation data for February will be released this week, and it’s a good bet that prices rose further last month, driven in part by the ongoing conflict in Ukraine.
Soaring gas prices
The rising cost of crude oil is fueling a huge spike in gas prices (which is a major driver of that sky-high overall inflation rate). Nationwide, prices hit a record high of $4.25 per gallon this week, and some cities are already seeing average prices above $5 per gallon.
Expiration of the expanded Child Tax Credit
The Biden Administration’s American Rescue Plan authorized a major expansion of the Child Tax Credit (both in terms of the maximum credit amount and the credit’s eligibility requirements). The rescue package also allowed eligible families to receive the first half of the expanded credit of six advance monthly payments, the last of which hit bank accounts in December. The expanded credit has not been extended for 2022. So while taxpayers can claim the remainder of what they’re owed when they file their 2021 taxes this spring, the regular monthly payments that were a lifeline for many families won’t be making a reappearance any time soon.
Return of student loan payments
Federal student loan payments, which have been frozen several times by the federal government, are set to resume on May 1, 2022, despite pressure from progressive activists that the payment pause be extended or made permanent.
More from Money:
7 Big Tax Changes That Could Affect Your Return — and the Size of Your Refund
Cars, Refrigerators and Other Purchases Americans Are Putting off Because of Inflation