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Americans are getting more responsible with their tax refunds. But it's even better if you don't get a refund at all.

3 minute read

This tax season, financial experts have reason to rejoice: Americans are finally listening to them. At least a little bit.

A new survey from Bankrate found that 34 percent of tax refund recipients plan to use that money to pay down debt. Another 33 percent plan to save or invest the money, and only 3 percent said they were planning to splurge on vacations or go shopping.

Normally, experts don’t like to see giant tax refunds for one simple reason: Although it feels like a cash windfall, it’s really just your own money that you’ve essentially lent to the federal government at no interest. Fill out a new W-4 at work and you could start getting that money sooner. Would you rather get $3,000 in February, or an extra $250 each month?

Weirdly enough, some people prefer the former.

Why forced savings accounts are a bad idea

Bankrate calls large refunds a kind of “forced savings account.” That’s because it “forces” you to “save” by taking money out of your paycheck, and puts the money out of your reach for a full year. Some people who have trouble saving on their own apparently like this.

Problem is, when you finally get that big refund check, you want (or maybe even need) to spend it — and you haven’t been training yourself to save. While the survey shows an increasing tendency to pay down debt and not blow the cash, more than a quarter of Americans still rely on their tax refund to cover basic necessities like food and bills.

The average tax refund for 2014 was $3,034. That extra $252 per month could help you get back ahead of the bills, pay down credit card debt, or start an emergency fund.

“You can’t go to the IRS to get money to replace the furnace,” Wisconsin-based tax preparer Laurie Ziegler told Bankrate.

The study also asked people whether they would rather have a large refund, small refund, or owe a little bit at tax time. And, it turns out, the poorest people want the biggest refunds. More than 40 percent of people who make less than $50,000 a year prefer large refunds. Just 32 percent of those making more than $75,000 a year do.

If you’re living paycheck to paycheck, having cash available is probably more valuable than forced savings. That way, you’re less likely to rely on expensive alternatives like rent-to-own stores and payday loans.


Consumers are getting wiser

When Bankrate first did this study five years ago, these numbers were pretty much all worse. Fewer people were saving and investing their money, and more were spending their refund on vacations and shopping. Here’s their chart for comparison…

Plan to use tax refund for:February 2015March 2010
Pay down debt34%30%
Save or invest33%28%
Spend on necessities (food, utilities)26%26%
Splurge (vacation, shopping)3%7%
None of the above/don’t know3%9%

The changes may seem slight individually, but combined they’re good news — 6 percent more know what they’re doing with the refund this year, meaning they’re less likely to fritter it away. And 4 percent fewer are splurging, while 9 percent more are using their refund constructively.

Adjusting your W-4 to minimize taxes and refunds

Less than a third of Americans say they want to hit the “sweet spot” of not getting a tax refund, but not owing any money to the IRS, either. It’s surprising more people don’t want the largest possible paycheck without getting dinged by an unexpected tax bill — which probably means they don’t know how, or think it’s too hard.

All you have to do is get a new W-4 form from your employer or from the IRS website, and ask your human resources department to help you fill it out correctly. You can puzzle it out on your own with these IRS instructions — but you have to give them the form anyway, so you might as well get the help.

HR will ask you a few questions, like whether you’re married, or have kids, or work multiple jobs. All of these affect how many “allowances” the IRS lets you take and changes the math used to withhold taxes from your paychecks. It’s just a two-page form, and won’t take long.

You don’t have to take all the allowances you’re eligible for, and if you don’t, you’re more likely to get a refund. If you want less of a tax refund and more take-home pay, you’ll want to increase the number of personal allowances on your W-4 form. You can make these changes any time of year, and they take effect as soon as your HR department processes them.

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About the Author

Jess Miller

Jess Miller

Miller is the former assistant editor of

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