2015 Tax Refund Consumer Spending Report

INTRODUCTION

The 2015 TAX REFUND CONSUMER SPENDING REPORT was conducted in the last two weeks of March with the purpose of providing insights into consumer behavior around Tax Day. Some of the questions this report addresses include:

  • Do people file their taxes at different times depending on the amount they expect to receive or owe?
  • How much money, on average, do people expect to receive or owe on their taxes?
  • If people are receiving a refund, do they know how they will spend it?
  • How much do people plan to spend in order to file their taxes?
  • Do perceptions of refund influence whether people plan to spend their refund money?

Respondents included 1018 U.S. consumers drawn from an online sample. The sample included slightly more males (52.1%) than females. The median age was 32 years and the median household income reported was approximately $45,800. A little under half of the sample said they were single without children (48.4%), almost a quarter said they were married with children (22.5%) and 13.5% of people said they were married without children. Almost half of respondents (45.9%) said they were full-time workers.

KEY FINDINGS

WHEN DO PEOPLE FILE THEIR TAXES?

In 2014, an interesting relationship emerged between the time at which individuals plan to file their taxes and whether they were expecting to get a refund. Namely, those who expected a higher refund amount from their taxes filed their returns much earlier than those who were expecting a smaller refund. At the same time, individuals who were expecting to owe a small amount of money on their taxes filed much earlier than those expecting to pay a larger amount.

This pattern was replicated this year. As the timeframe in which people plan to file their taxes moves closer to the April 15 deadline, the average amount of money individuals expect to receive from filing their taxes decreases and the average amount of money people expect to owe increases.

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HOW WILL REFUNDS AND AMOUNTS OWED COMPARE TO 2014?

Last year, 77% of people were expecting or had already received a refund and the average refund amount was about $1500. This year, a smaller proportion of people (67.6%) expects or has already received a refund, and the average refund amount is about the same ($1506.09). This year, 29.2% of people anticipate owing or know that they owe additional money on their taxes, while last year only 19% of people expected to owe or owed money on their taxes. The average amount that individuals expect to or already owe in 2015 ($1020), has increased slightly from 2014 ($955). Thus, there is an overall net 13% increase in the amount of money people expect to receive vs. owe from 2014 to 2015.

There is an overall net increase of 13% in the amount of money people expect to receive vs. owe from 2014 to 2015.

HOW DO PEOPLE PLAN TO SPEND THEIR REFUNDS?

Of those who expect to or have already received a refund, more than half (55%) know what they will do with their refund money. Of particular note, when asked about the proportion of their refund that they will allocate toward saving, paying down debt, buying something needed, buying a treat, investing, and contributing to charity, consumers reported about the same average proportions as last year. Specifically, both last year and this year, people planned to save about a third of their refund and use a third to pay down debt. Likewise, respondents in 2015 reported that they will use about the same proportions of their refunds for buying something needed, buying a treat, investing, and contributing to charity as they did in 2014.

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WHEN WILL REFUNDS FIND THEIR WAY TO THE MARKET?

Of note, not only do individuals who file early expect to receive larger refunds (on average), but those who file early are also more likely to plan to make purchases with their refund money. In fact, as the date on which individuals plan to file draws closer to the April 15 deadline, people are less and less likely to plan to make purchases with their refund money. What does this mean? People who file early expect to receive more money and are more likely to plan to make purchases with that money, than people who plan to file later. Thus, more money will be in the market and spent earlier in the tax-filing season than later.

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REFUND PERCEPTIONS AND SPENDING PLANS

There are different ways in which consumers can view or perceive their tax refund. For example, it is possible for people to view the money they receive back from their taxes as money they are owed, an end of year bonus/unexpected gain, or as a self-imposed savings account. However, does a consumers’ perception of their refund matter in terms of whether they will spend it in the marketplace or not? The answer is yes. Of the consumers who view their tax refund as a bonus, 53% plan to make some sort of purchase with their refund money. On the other hand, only 39% of consumers who view their tax refund as money they are owed, and 20% of consumers who view their refund as a self-imposed saving account, plan to make purchases with their refund.

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This finding is important as it suggests that, in order to encourage consumers to use their tax refund for purchases, marketers should promote the perception of refunds as a year-end bonus or an unexpected gain rather than as money consumers are owed.

DOES REFUND PERCEPTION AFFECT SHOPPING PLANS?

The results of the survey revealed that how people perceive their tax refund influences not only whether they plan to make purchases with that money, but also where they would shop. Specifically, we asked consumers whether they planned to make purchases at stores they rarely shop at or at stores they already frequent, as well as whether they planned to shop online or in brick-and-mortar stores.

Consumers who view their refund as a bonus were more likely to say that they planned to go to stores they rarely shop at compared to consumers who view the refund as money that was owed to them. In contrast, consumers who view the refund as a bonus were less likely to select stores they frequently shop at than consumers who view the refund as money they are owed.

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It’s tenable to speculate that consumers who view their tax refunds as money they are owed are more likely to simply integrate their refund money into their everyday expenditures. Meanwhile, those who perceive it as a bonus are spending their money at places they don’t normally frequent. Thus, specialty stores or businesses hoping to acquire new customers over the tax filing season should consider specifically targeting consumers who view their refunds as a bonus.

Perceptions of the refund also influence whether consumers are planning to shop online or in stores. Those who view their tax refunds as money they are owed plan to spend their refund more in stores and less online than those who view their refunds as a bonus. The opposite is true for in-store spending; those who see their tax refunds as money owed to them plan to shop more in stores than those who see it as a bonus.

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FILING FACTS

WHO WILL FILE TAXES & HOW?

Last year, 60.9% of consumers said that they planned to file their taxes themselves, while 39.1% said they planned to have someone else file their taxes. This year, the percentage of individuals who plan to file for themselves rose to 73.9% and the proportion of consumers planning to have someone else file for them dropped to 26.1%.

As was the case in 2014, the top three filing methods consumers plan to use are commercial software (e.g., TurboTax, H&R Block, and TaxACT), a paid professional, and IRS free online filing. About half of consumers plan to use commercial software, about a fifth plan to use a paid professional and about 15% plan to file via IRS free online filing. Further, while only 19.7% of consumers changed their filing method in the past five years, there is a general trend of those who switch methods to adopt commercial software as their new means of filing taxes.  Consumers said that accuracy was the most important factor to consider when choosing a filing method, followed by cost, and ease/convenience.

HOW MUCH WILL PEOPLE SPEND TO FILE THEIR TAXES?

The overall mean amount of money consumers plan to spend to file their taxes is approximately $75.50. Breaking this down by filing methods, consumers plan to spend an average of $32.79 to file via commercial software and $171.93 to file via a paid professional.

EDITING YOUR TAX FILING

We asked consumers what they would do if, during the filing process, they were dissatisfied with the amount of money they discovered they would owe or be refunded. In considering all consumers together, about an equal portion said they would edit their information, try another filing method, and submit anyway if they were dissatisfied with the amount they were to receive or owe on their taxes (37.8%, 36.3%, and 32.6%, respectively). However, consumers’ perception of the refund also influences how they would respond to discovering they were getting a lower refund than anticipated.

Consumers who view their tax refund as money they are owed are more likely to go back and edit information than those who see their refund money as a bonus. Meanwhile, those who perceive the tax refund as a bonus are more likely than consumers who see the refund as money they are owed to submit their filing anyway if they are dissatisfied with their refund amount.

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Anne Wilson

Research Associate

Anne Wilson is a Research Associate for the Georgetown Institute for Consumer Research. Anne aids in the development, design, and implementation of research. Anne also supports other various initiatives and projects within the Georgetown Institute for Consumer Research. Anne earned her BA in Psychology and English from Georgetown University in 2013.

Iris Wang

Research Associate & Communications Coordinator

Iris Wang was Manager of Research Communications and Research Associate for the Georgetown Institute for Consumer Research. In addition to conducting research on consumer behavior, Iris  was responsible for all marketing functions of the Institute including website management and social media engagement. She also provided support for the Behavioral Research Lab and supervises undergraduate research assistants. Iris earned her BA in Psychology and Spanish from the University of Virginia. Recently she finished a year working in the Marketing Department at MIT Sloan School of Management.

Kurt Carlson

Director of the Georgetown Institute for Consumer Research and Professor of Marketing, McDonough School of Business

Professor Carlson teaches courses on marketing research, consumer behavior, and marketing management. He is also the director of the Georgetown McDonough Behavioral Research Lab. He received his bachelor’s and master’s degrees from the University of Wisconsin and his Ph.D. in marketing from Cornell University. Prior to joining Georgetown, Carlson was on the faculty of the Fuqua School of Business at Duke University from 2001 to 2009.

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