Gen Z, Millennials Depend On Tax Refunds This Season, Cost of Living to Blame
● A new report finds that Americans will use their tax refund to pay for necessities, with repayment of student loans a higher priority than tax bills.
As the current economic landscape remains uncertain amid high interest rates and the high cost of living, some consumers are anxious during tax season, while others are hoping to receive refunds.
In a recent report, Credit Karma published survey results looking at this year's tax filing season. The survey conducted by Qualtrics on behalf of Credit Karma polled more than 3,000 U.S. adults filing taxes this season. While historically, Americans save filing their taxes closer to the April 15 deadline, the survey found that more than half of Americans (54 percent) are filing their taxes early to get their refund sooner.
Notably, 64 percent of Generation Z and 65 percent of Millennials say they plan to file early this year — with a sensen of urgency, the report's authors suggest — as many depend on their refunds to keep up with spending.
While some depend on the tax refund to keep afloat their finances, 34 percent of people polled said they will use the money to pay credit card debt, personal loan debt and medical debt.
Others reported they plan on splurging on things they wouldn't typically buy. One in five taxpayers polled said they will be spending their refund on travel, or large purchases such as a car or appliances. Gen Z (29 percent) and Millennials (28 percent) were the most likely to admit their splurge plans. And while many have high hopes about their refunds for this year, 36 percent of people are anxious about owing money for the 2024 tax season.
Across all demographics, 31 percent of taxpayers polled said they depend on their tax refund to pay for necessities.
The amount increases to 40 percent for Millennials and 38 percent for Generation Z taxpayers. Thirty-seven percent of consumers surveyed expecting a refund this year said they will use some or all of their tax refund to pay for necessities such as rent and groceries.
Fifty-six percent of all taxpayers surveyed said their dependence on tax refunds is attributed to the rising cost of living. Other explanations include living paycheck-to-paycheck (46 percent), inflation (45 percent) and depleted savings (25 percent).
Another notable reason for taxpayers' reliance on their tax refund is the resumption of student loan repayments. Forty-four percent reported their reliance on their tax refund this year because of student loan payments. This increases to 54 percent for Gen Z and 48 percent of Millennials who have outstanding student loan debt.
The report's authors note that student loan repayments are of utmost importance, even more than paying back taxes. Thirty-six percent of Gen Z taxpayers surveyed reported prioritizing repayments over their tax bill.
“Refunds are often the largest windfall for Americans, and many rely on this annual infusion of cash to make ends meet, pay off debt or kick off savings for the year ahead,” said Courtney Alev, consumer financial advocate and head of tax at Credit Karma. “Americans' dependency on refunds may be heightened this year as many grapple with the increased cost of living, which has led many Americans to live paycheck to paycheck.”