Income tax season is not just a boon for companies in the accounts receivable management industry; it’s also usually a bonus for consumers, too. This year, though, could be different, thanks to a variety of economic and pandemic-related factors that may make tax returns less bountiful than usual. A report issued last week by the JPMorgan Chase Institute looked at those factors, but also looked at some of the ways that consumers spend their tax refunds, and the ripple effects that may be felt.
Prior to the pandemic, a tax return was the largest single cash infusion of the year for 40% of families living in America, according to the report — amounting to six weeks’ worth of income, on average. But that might not be the case this year.
First, the report noted that the Internal Revenue Service has a backlog of 6 million returns it is still processing from last year. That could delay when people receive their returns this year. Layer on inflation and pandemic assistance that advanced consumers some of the money that they would normally receive as part of their tax refund and you have “a converging set of headwinds that may impact how families respond to tax time this year,” the report noted.
There is plenty of data to support the conclusion that people quickly spend their tax refunds. Families, for example, increase their out-of-pocket healthcare spending by 60% in the week after they receive their refund, according to the report. Income tax refunds not only dictate when people pay for their healthcare, but when they actually receive it, often deferring treatment until after they receive their refund.
A strong job market should help consumers make sure they have jobs, and wage gains that have been made to attract and retain talent while also addressing inflation will help consumers, too, according to the report.
