Economy

Taxpayers' Big Refund Plans? Pay the Bills

Most people say they plan to use this year's tax refund to pay bills, deciding in this sour economy to be more frugal with their annual windfall.

Fifty-four percent of those receiving refunds said they intend to pay off credit card, utility, housing and other bills, according to an Associated Press-GfK poll released Monday. That compares with 35 percent who said the same thing a year ago.

Only 5 percent, about the same as a year ago, said they planned to go on a shopping spree.

The survey found that 38 percent of those receiving a refund said they plan to spend at least part of it. But the spending appears to be mostly on basic needs: 17 percent said they would use the money for everyday needs such as food and clothing. It was 7 percent a year ago.

Phillip Barks of Aberdeen, Md., said he and his wife, Kristy, have spent their $3,800 refund. Most went toward a credit card bill.

"We didn't pay that off, though," said Barks, 31, who serves in the Army. "We just put a big dent in it."

The Barks, who were not part of the poll, were interviewed on a downtown street in Washington.

A few blocks away, Shannon Wyss of Washington said she plans to save most her $1,066 refund. She will, however, treat herself a bit; she's already spent $99 on a device for her iPhone.

"I need a pair of shoes," said Wyss, 36, who works for the National AIDS Fund.

The deadline for individuals to file their 2008 tax returns is Wednesday. As of last week, the Internal Revenue Service had sent out about $200 billion in tax refunds. Commissioner Doug Shulman said the agency expects to send out about $330 billion by the end of tax season.

The AP-GfK poll found that 57 percent of adults said they expect to receive a tax refund. The average refund this year is about $2,700, compared with $2,500 last year, Shulman said.

For last-minute filers, Shulman said the quickest way to get a refund is to file electronically and have the refund deposited directly into a bank account. Those refunds take about 10 days to process, he said. Refund checks from paper returns take four to six weeks to process, he said.

The IRS warned taxpayers Monday to be on the lookout for fraudulent schemes by those claiming they can help people avoid paying taxes. Some scams are promoted in unsolicited e-mails, which can enable computers hackers to steal taxpayers' identities if the e-mails are opened. The IRS says it never initiates unsolicited e-mail contact with taxpayers.

"There is no secret trick that can eliminate a person's tax obligations," Shulman said. "People should be wary of anyone peddling any of these scams."

The Obama administration is hoping this year's refunds will help boost an economy that has shed more than 5 million jobs since December 2007. Congress passed a $787 billion economic recovery bill in February. The package was a mixture of government spending and tax cuts designed to get people to spend at a time when most are cutting back and saving more. It makes sense to be frugal when the economy is in such bad shape, but it hurts the economy when everyone does it.

The poll found that 35 percent of those receiving refunds plan to save or invest at least part of the money, a slight increase from a year ago. About 37 percent said they planned to use their refunds to pay down debt, including credit cards, and student and personal loans. A year ago, 24 percent said they would use at least part of their refunds to pay down debt.

Only 3 percent of those receiving refunds said they planned to invest at least part of the money in real estate, which has been depressed in markets across the country.

Michael Perch, 48, of Alexandria, Va., said he plans to use part of his hefty refund to take advantage of real estate bargains in the Atlanta area. Perch, a government contractor for the Defense Department, expects to receive a $17,000 refund.

Perch, who was interviewed near the White House, said he plans to buy affordable homes and rent them to struggling families, then sell the homes after the market improves.

"It's tough out there right now," he said.

The poll found that those making less than $50,000 a year were much more likely to use their tax refunds to pay bills or buy everyday items than those making more. People making more than $100,000 a year were more likely to use their refunds to go on a vacation.

Among the poll's other findings:

  • 31 percent of those receiving refunds said they will use at least part of the money to pay credit card bills, compared with 17 percent a year ago.
  • 19 percent said they will use their refunds to pay utility bills, compared with 10 percent a year ago.
  • 17 percent said they will use their refunds for rent or mortgage payments, compared with 7 percent a year ago.
  • 11 percent of those receiving refunds said they would use them to go on vacation, a slight increase from a year ago.
  • 5 percent said they planned to use their refund for a down payment on a car, also a slight increase.
  • 4 percent said they would use their refunds to buy stocks or bonds, about the same as a year ago.
  • 8 percent of those who owe taxes said they were very likely or somewhat likely to use a credit card to pay their tax bill.

The AP-GfK poll was conducted April 3-7 and involved landline and cell phone interviews with 1,002 randomly chosen adults. The margin of sampling error is plus or minus 3.1 percentage points for the entire sample. The margin of sampling error is plus or minus 4.3 percentage points for those who have already received or expect to receive a tax refund from their 2008 taxes.