Could your tax refund help you weather the inflation crisis? Here's how to use it wisely.
Higher living costs are causing a lot of Americans a world of financial stress. Not only has inflation been rampant since mid-2021, but some experts warn that we may be looking at higher expenses for much of 2022.
If you've been dipping into your savings account to cover your everyday bills, you're probably in good company. But what if you don't have savings to fall back on? In that case, you may slowly but surely be racking up debt just to stay afloat.
That's the bad news. The good news, however, is that if you have cash coming your way from the IRS, it could be just the thing that helps you get through these tricky times.
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Will your tax refund come to the rescue?
Many tax filers are anticipating a refund this year, and if you're one of them, you may have a nice chunk of money to look forward to. As of Feb. 25, the average 2022 tax refund came to $3,473. Granted, we still have more time to go in the tax season, so that number could change. The point, however, is that if you're getting a large sum from the IRS, it could be a good idea to use it to keep up with bills – and perhaps get caught up on past-due expenses.
According to recent data from Capital One, 43% of lower earners and 30% of middle earners say their tax refunds will be very or moderately important to their overall financial health this year. At a time when living costs are skyrocketing, it pays to put that money to work.
It also pays to file your taxes as quickly as possible if you haven't done so already. The sooner you do, the sooner you can expect your refund to arrive.
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Have less tax withheld if your refund is huge
If you end up getting a massive IRS refund this year, and you're also struggling to keep up with higher living costs, then it might be a good plan to take a look at your tax withholding and see if adjustments are in order. That big refund may mean you had too much tax withheld from your earnings in 2021. The amount of tax your employer withholds from your paychecks is based on the information you enter on your W-4.
If your income is comparable in 2022, registering some changes with your payroll department so your paychecks get larger could help you manage your finances more easily throughout the year. That way, you'll have access to more of your money as you earn it, as opposed to having to wait until you file your 2022 tax return in 2023 to get the money you're owed.
Right now, a lot of people are struggling with higher costs at the pump, the supermarket, and just about everywhere. If you're at the point where your paychecks can't cover your bills, filing your taxes sooner rather than later may help you cover your expenses if you're due a refund. Just as importantly, see if there's room to adjust your withholding so you're able to get more of your money up front – when you need it.
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