Making the Most of Your Tax Refund

By Richard Cordray, Director of the Consumer Financial Protection Bureau

Each year at this time, many consumers receive the largest lump sum payment they will see all year – their income tax refund. This seems like it should be a “golden moment” to save. But for many people, making ends meet throughout the year is tough, and the tradeoff between saving versus other uses for the money can be difficult. This year, if any tax return money is left over, consumers should consider using a portion of it to build an emergency fund to cushion them against financial difficulties, or to start a nest egg.

A recent study by the Corporation for Enterprise Development showed that 44 percent of American households do not have enough savings to cover their expenses for three months if they lose their source of income, and 17 percent have no savings whatsoever. Saving even a portion of a tax refund can help consumers get through times of financial uncertainty. Last year, 73 percent of households received a refund that averaged $2,953.

If they have any money left over after paying their bills, many consumers may want to splurge by spending their tax refund on a new television or a much-needed vacation. Yet, depending on their individual financial needs, consumers should also think about saving some money to get out in front of unexpected setbacks later in the year. Others may consider saving to get closer to their financial goals, such as paying for collegeowning a home, or planning for retirement.

At the Consumer Financial Protection Bureau (CFPB), our mission is to protect and empower consumers, which includes helping people strengthen their financial independence. Helping people save is core to that mission. That is why we encourage consumers to make the most of their tax refund by taking a few simple steps.

Consumers with income under $62,000 per year can save money on the front end by using free tax filing options. They can use software offered by major tax preparation firms through the “Free File Alliance” sponsored by the IRS. If consumers have incomes under $54,000 per year they can get free help from a Volunteer Income Tax Assistance (VITA) program in their community, where IRS-certified volunteers prepare and file tax returns electronically.

Many consumers who use commercial tax preparers pay their fees with an advance on their refund. But these advances carry extra costs, and it can be cheaper to pay the fees up front.

Commercial tax preparers may also offer incentives, like tax refund anticipation loans, so that consumers receive their money quicker. The fees on these loans can be very high, so consumers may be better off waiting to get their whole refund from the IRS. By using direct deposit, the refund will usually come within 21 days, more than twice as fast as a paper check.

During tax season, consumers should be on the lookout for scammers eager to steal their tax refunds. People can protect against tax fraud by staying alert for scam phone calls and refusing to give personal or credit card information over the phone or online. The IRS does not call or email consumers asking for personal information or demanding immediate payment.

Saving at least a portion of their tax refund can help consumers handle unexpected expenses in the future. The IRS allows tax filers to directly deposit their refund in as many as three separate accounts. That means a consumer could have the IRS send some of the refund to a checking account to cover immediate expenses and send the rest of it to a savings or retirement account.

Tax season is a unique opportunity for consumers to make the most of their tax refund, by building savings and preparing for future expenses. We encourage everyone to seize this “golden moment” to save now, and breathe easier later.

Learn more about using tax time to save at http://www.consumerfinance.gov/tax-time-saving/

 

Take the Pledge

I pledge to save money, reduce debt, and build wealth over time. I will encourage my family and friends to do the same

Take the America Saves Pledge

Tip of the Day

  • Written by Administrator2 | January 14, 2014

    To minimize interest charges, limit credit card purchases to those you can pay off in full at the end of the month. In the end you'll have more for emergency savings. http://ow.ly/FJyVP

Saver Stories View all »

Starting Over

Written by Katie Bryan | October 28, 2013

Until last summer, Michael Lindman spent money freely. “I was a union truck driver for 35 years and had a good income,” said Lindman. “I owned my own home, saved a little, and tried to live within my own budget. You always think there’s going to be that much coming in, but things can change in a split second.”

Read more...

Getting Out of Debt

Written by Katie Bryan | October 28, 2013

In 2004, Tonya Shelton was facing financial ruin. Barely making more than minimum wage and having lost her home to an unexpected family crisis, Shelton and her family were forced to live in a rundown hotel.

Read more...

Transforming “I Can’t Save” to “I Will Save”

Written by Guest Blogger | January 13, 2016

You will not believe what it took to completely change my life. About three years ago, the HR Administrator of the corporation where I worked (as a temp with no benefits) forwarded an email to me. Fifteen seconds. One small act of kindness. That's it - that's all it took!

Read more...

Receive Updates

Sign up for Texts

Written by Tammy G. Bruzon | July 15, 2014

Sign Up

Sign up for Emails

Written by Super User | September 16, 2013

Get Emails

Take the Pledge

Written by Super User | September 16, 2013

Start Saving