As Tax Day approaches, there’s promising news for taxpayers expecting refunds. The IRS reports the average tax refund has risen to $3,207, marking a 2.1 percent increase from last year. This improvement follows a period of diminished refunds attributed to the expiration of pandemic-era tax breaks. Adjustments for inflation by the IRS have led to increased standard deductions and tax brackets, offering a bit of financial relief for many.
However, a recent LendingTree survey reveals a significant number of people plan to use their refunds to pay down debt, highlighting ongoing challenges with inflation and the cost of living. Jacob Channel, a senior economist at LendingTree, notes that while inflation’s growth rate is slowing, expenses remain high, leading many to accrue more debt to manage daily costs.
For those receiving a tax refund, considering how to maximize its value is crucial. Opting for a high yield savings account over traditional bank savings with minimal interest rates can significantly enhance savings growth. For example, investing a $2,000 tax refund in a high yield account with an annual percentage yield of 5.25 percent, plus monthly contributions of $25, can yield over $250 in interest in two years, far surpassing the returns from standard bank accounts. This strategy not only promotes saving but ensures funds are accessible for emergencies, albeit with some potential restrictions.
FingerLakes1.com is the region’s leading all-digital news publication. The company was founded in 1998 and has been keeping residents informed for more than two decades. Have a lead? Send it to [email protected].