Last year, almost three-quarters of the American population got a tax refund, averaging $2,825 per refund, according to the IRS. Many military families count on a large tax refund each year, to pay down debt or go on vacation. Even those that try to balance out their withholdings to owe nothing and get back nothing may find the irregularities of the military get in the way. If the service member had non-taxable income, for example, all of a sudden the Earned Income Tax Credit could kick in when it hasn’t ever before.
This year there are even more changes that may be affecting the size of your refund. As of early February, the average refund was just $1,949, down slightly from last year. What are these changes, and how could they affect you?
Nicole Burke, a tax preparer and military spouse, shed some light on those changes.
“First, the child tax credit doubled – from $1,000 to $2,000 per eligible child – and up to $1,400 of it is a refundable credit. That means if the taxpayer has no tax liability, they can be refunded up to $1,400 per child,” Burke said.
She continues with a word of caution, “This child tax credit change could result in increased refunds for many families, however, there are additional changes in the 2018 tax reform that can have an impact on a family’s tax situation.” The bottom line, “The increase in child tax credit and how much is refundable is not a guarantee of a higher refund for everyone.”
So, let’s say your family is getting a tax refund this year. And it’s the same as the 2018 average of $2,825. What are you going to do with it? What should you do with it? Experts will argue about whether you should save or spend your tax refund.
Here are some recommendations for how to use that tax refund:
- Pay down debt. If you have debt, especially high interest debt, this is a great time to put a lump sum down on it. It’s not very exciting, but imagine what you can do with that extra money once that debt is paid off!
- Save. Putting your tax refund in a savings account is probably the most boring thing ever. But, if you don’t have a need for it right now, socking it away for a rainy day will be helpful in the future. You never know when you might need a car repair, a new washing machine or have a last-minute PCS with some out-of-pocket expenses.
- Go on vacation. If your budget is in good shape (and even if it isn’t, we don’t judge) treat yourself with some of your extra cash and enjoy a family vacation. Military families have a hard enough time making travel plans work, make sure you enjoy this one.
- Donate. People always say if they win the lottery they’ll donate to a charity. Well, you basically did win the lottery. Free money for you. Now is a great time to give some of that away.
- Increase retirement savings. Another responsible thing to do with money is put some toward your retirement, and if you haven’t started a retirement plan, well, now’s the time to do it.
- Buy something fun! Economists like it when people fuel the economy, and there’s generally an uptick of spending right after tax returns start being processed. There’s no reason you can’t do your part to stimulate the economy and splurge on yourself and your family.
If you are one of the lucky ones to get a tax refund this year – and even luckier if it’s bigger than last year – we want to encourage you to look at one more thing. What could you have done with that extra money throughout the year? Talk to a tax professional and consider adjusting your withholding to avoid giving the federal government an interest-free loan again this year.
Of course, there are many other options of what you can do with your tax refund, and maybe a combination of these ideas is right for you. Do you anticipate a tax refund this year? What are your plans for it?Read comments