Tax refunds are more of a lifeline for households than anticipated just a few months ago.
Before the coronavirus pandemic took hold in the U.S. and ran roughshod over the economy, the top plan for tax refunds was to save the money in a savings account, said 48% of respondents in a survey by TD Ameritrade. That was followed by paying down credit card balances (24%) and other debt (22%).
Just a couple months later, priorities had changed.
While putting refunds in a savings account still ranked as the top plan, the share of taxpayers citing it fell to 37%. And coming in second was paying for living expenses such as mortgage or rent (36%) followed by paying for bills like electricity and phone (35%).
"It's a shift from wants and wishes to their needs," said Dara Luber, senior manager of retirement at TD Ameritrade. "They're taking into account what they need to pay for their own living expenses and focusing on their bills."
The surveys were conducted in early March and then again in late April/early May. Each poll involved 1,000 adults who have at least $10,000 in investable assets.
By generation, the drop in plans to save the money was most notable among millennials, the survey showed. Nearly half of that demographic cohort (46%) planned to put their refunds in savings pre-pandemic. By the second survey, that share had dropped to 26%.
"Gen X and baby boomers likely have more of a safety net," Luber said.
Millennials also are more likely to now need the money to pay for living expenses, the survey shows. About half (49%) said their refund would be used to pay for living expenses, compared with 36% of Gen Xers and 30% of boomers.
The new research comes as the July 15 federal tax-filing deadline approaches. As of June 26, about 140 million had filed their tax returns, according to the IRS, which has paid out $259.7 billion in refunds. The average refund is $2,759.