Recession-wary taxpayers holding on to IRS refunds

It's tax day, which means tax refunds for millions of Americans — but this year, those refunds appear to be headed for people's wallets and bank accounts, instead of being spent on shiny new purchases.

Several recently released surveys show that more Americans plan to hold on their refunds or use it to pay bills. Fewer consumers — almost none in some cases — say they'll use it to splurge on wanted items.

The average Iowa tax refund is about $550, according to the state Department of Revenue.

"From the data it's pretty clear they're taking care of their own financial needs first, whether it's paying off debt (or) spending it on everyday necessities," said Jeremy Ruch, senior director at Washington, D.C.-based FTI Consulting.

Fifty-seven percent of respondents in a recent Allstate/National Journal poll said they would use their tax refunds to pay for financial obligations, like debt or groceries. Only 8 percent said they'd buy something "nice or fun" with the money.

"Years ago, the story or the attitude used to be, 'Oh, you're getting a tax refund; it's time to get a new deck,' " Ruch said. "It seems from our data that people aren't at that place yet. They'd rather make a more safe financial decision."

MORE: 5 tips to help you file taxes

Different surveys by the consumer finance website Bankrate, the National Retail Federation and Principal Financial Group showed similar results.

The Bankrate survey indicated that about a third of Americans planned to use their refunds to pay down debt, while another third would put their rebate into savings. About a quarter of respondents said they'd use their refunds to pay for monthly bills. Only 3 percent said they'd take the refund and "splurge."

Those plans are smart moves by consumers, experts said, who called it a hangover of the recession.

"They are scared, they are unsure, they trusted other people and they did things that didn't work very well for them, so they are trying to be careful and more cautious," said Tahira Hira, an Iowa State University professor and personal finance expert.

Consumers being more cautious with tax refunds and spending is all part of a new normal, said Alec Levenson, a senior research scientist at the University of Southern California.

"Lots of people realistically look at their job prospects and say there's not a lot of slack," Levenson said. "If they get a windfall like a tax refund, they spend it on a necessity. That's been the story for a long time for a lot of people."

Even if refunds can help with monthly bills, Hira said consumers shouldn't necessarily look at their tax refunds as the best outcome from tax day. Getting a refund means taxpayers overpaid the government during the year.

Hira said that equates to providing the government with an interest-free loan before you get your money back. In other words, it's money that could have been in consumers' hands and saved during the year.

By the numbers

99 million federal tax returns received, as of April 3

77 million federal refunds issued

$2,800 average federal refund

1,245,771 Iowa tax returns received, as of April 10

92.3% filed electronically

$553.83 average Iowa tax refund

Source: Internal Revenue Service; Iowa Department of Revenue.

Last-minute filers

What to do if you haven't filed

Wednesday is the deadline to file federal tax returns. Iowans have until April 30 to file state tax returns. If you haven't filed your federal taxes, here are some last-minute tips from TaxACT Director of Tax Development Mark Jaeger:

Look into an IRA

Contributing to an individual retirement account can net taxpayers a quick deduction. The contribution has to be made by the end of the day Wednesday, Jaeger said. Taxpayers can contribute up to $5,500 or up to $6,500 per year, depending on their age.

"Whatever (they) deduct up to that limit — the $5,500 or $6,500 — they can write that straight off their income," Jaeger said.

Don't mix up account numbers

Taxpayers can opt to have the government withdraw owed taxes or deposit refunds directly into their bank accounts. Jaeger said consumers need to double-check that they provide the correct routing and account numbers, though. Don't mix them up, otherwise the Internal Revenue Service or state can't withdraw the money owed. If consumers are pinched financially, they can also ask to set up an installment payment plan with the IRS.

Ask for an extension

Taxpayers who need more time may ask the government for a six-month filing extension. The IRS has electronic filing options on its website, www.irs.gov/. Even with an extension, there's a catch: You still need to pay by Wednesday, estimating your liability or potential refund.

"Just because you're getting an extension doesn't mean the IRS doesn't expect to you pay," Jaeger said.

Jaeger suggested taxpayers who are crunched for time look at last year's tax returns or plug their annual income into tax preparation software to get a ballpark estimate of what they would owe.

He said it's better to overestimate tax liability to try to limit a penalty from the IRS for not paying enough.