How Are People Spending Their Tax Refunds? (2024)

Roughly half of the tax-paying adults in the U.S. expect to receive a tax refund this year—but many aren't planning purchases.

While you may think people would spend on vacations or shopping sprees, the majority are planning to act more responsibly by paying down debt or putting the money into savings in case of an emergency, according to a survey from Lincoln Financial Group.

Some taxpayers who filed before the April 15 tax deadline have already received their refunds. But even if you waited until the last minute, you likely have an idea of what your refund or tax bill will look like. If you're getting money back, that gives you plenty of time to figure out how you want to spend that money before you get it.

“While it’s tempting to splurge on short-term indulgences when that refund comes, it’s crucial to consider long-term financial goals,” said Aaron Moore, senior vice president of Retirement Plan Services Institutional Sales & Client Engagement at Lincoln Financial Group. “By taking a proactive approach to managing tax refunds, individuals can lay the groundwork for a more secure financial future.”

Saving Refunds Trumps All Else For Taxpayers Of All Ages

Almost 40% of the people surveyed by Lincoln Financial said they plan to put their tax refunds in a savings account to deal with emergencies and other expenses. Saving was a priority for this group of respondents, ahead of options such as buying something for themselves, retirement planning, home repairs, investing in stocks and even vacations.

And that trend was consistent across different age groups too, with 41% of Gen Z, 37% of Millennials, 37% of Gen X, and 46% of Boomers intending to pad their emergency savings.

Millennials Want Refunds To Help Pay Down Debt

Of the more than 2,000 people surveyed, about 37% want to chip away at their debt obligations.

Household debt reached $17.5 trillion in the fourth quarter, according to the most recent data available from the Federal Reserve Bank of New York. The bulk was housing-related debt such as mortgages, but credit card debt accounted for $1.13 trillion and auto loans were $1.61 trillion.

Debt was especially acute for borrowers aged 40 to 49, who held the largest portion of debt when broken out by age, the New York Fed found. Lincoln Financial Group's survey found similar patterns in those looking to pay off debt.

While 47% of Millennials and 39% of Gen X intend to pay off debts, only 30% of Boomers and 24% of Gen Z have the same plan.

Refunding Your Way To Retirement Goals

With a growing number of Americans worried about reaching their retirement goals, it is surprising that only 14% of Gen Xers plan to use their tax refund to get closer to that goal. Many households risk not being able to maintain their living standards in retirement, and Gen X seems to be at the greatest risk, with the average Gen X household only having $40,000 in retirement savings despite retirement being just around the corner.

Employer-sponsored 401k plans cannot directly accept tax returns, but Americans can temporarily increase their contributions and leverage their tax refunds to make up for these additional retirement contributions. With this strategy, individuals can increase their retirement savings and benefit from tax advantages associated with 401k contributions, according to Lincoln Financial Group.

In addition, the IRS offers a tax credit for individuals who contribute to an IRA or employer-sponsored retirement plan through its Saver's Credit program. Using this credit can reduce tax liability and further encourage retirement savings.