Poll Finds Significant Share of Americans Use Tax Refunds to Meet Basic Needs

The 2023 tax filing season is drawing to a close and it was, by many accounts, the smoothest filing season—for both the IRS and taxpayers—since before the pandemic. With the IRS touting improved services throughout this filing season, now is a good time to take stock of taxpayers’ perspectives. A new poll from the Bipartisan Policy Center and Morning Consult provides more details on the filing experience and how taxpayers are using their refunds in this uncertain economy.

As of the end of April, IRS data showed service improvements from their perspective this tax season:

• By April 21, the IRS had processed 98.1% of total returns it had received, compared to just 90.6% for the same week in 2021.
• Through April 14, IRS customer representatives had provided an 85.4% level of service (one measure of how many taxpayers seeking help from an IRS employee are able to reach one) on its phone lines compared to just 16% through the same period in 2022.
• Also through April 14, the IRS reduced the average time to answer taxpayer calls from 28 minutes last year to just three minutes.
• Taxpayers received smaller refunds on average this filing season ($2,812) than last filing season ($3,033), potentially due in part to the expiration of pandemic-era expansions of the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC).
• From an administrative perspective, the end of these changes likely reduced confusion and filing complexity at tax time. Visits to the IRS website during tax season were 20% lower than in 2022 and 60% lower than in 2021.

BPC and Morning Consult wanted to better understand how taxpayers felt they fared, polling 2,200 adults from April 25-28, 2023, on their filing experiences during the 2023 tax season and their current financial well-being, with key findings below.

How Americans Filed

At the time the poll was conducted, 80% of responding adults had filed their taxes for 2022 income.[1] Figure 1 shows how these individuals filed their recent tax return, with more than a third (37%) using tax preparation software, while another 26% hired a paid tax preparer, 15% filled out IRS forms on their own, and 12% had a family or friend file their taxes.

Figure 1: How did you file your most recent 2022 tax return?

The IRS extended filing and payment deadlines for taxpayers in disaster areas, including most of the state of California, for the 2023 filing season. These extensions may explain a significant portion of the adults who reported not having filed their 2022 taxes in the BPC-Morning Consult poll.

Poll respondents also expressed concerns about tax code complexity and compliance burdens when filing. BPC has raised similar concerns, generally agreeing that solutions to improve system automation, strengthen data-sharing practices, and mitigate filing errors from the start would enhance the taxpayer experience. Respondents were asked how the IRS could ease the filing process. Some argued that nothing needs improvement, while many had suggestions to enhance the current system’s data processing capabilities, increase efficiency to disburse refunds faster, or even reform the entire structure of the tax code:

“IRS could work to automate the process of data entry, by allowing taxpayers to upload digital copies of their W-2s, 1099s, and other tax documents. This would reduce the risk of errors and make it easier for taxpayers to complete their returns quickly and accurately.”

 

“Nothing in particular. I have never had any difficulty.”

 

“Scrap the current system and adopt a flat tax or a national [tax].”

 

Free File? The Devil’s in the Details

This complexity may explain why nearly three-quarters of adults (73%) showed interest in having access to a free online filing tool from the IRS. Notably, high-income adults (82%)—those in households making over $100,000 per year—were the most likely to report some interest in using such a tool to file their taxes compared to middle- (76%) and lower-income (67%) adults—those making $50,000 to $100,000 per year or less than $50,000 per year, respectively. Among those who showed interest (73%), they said that it could save them money and time. Among those who said they probably or definitely would not be interested in using the tool (14%), reasons included preferring a professional to file for them, that their return would be too complicated, concerns about data security, and general lack of trust in the IRS:

“Our taxes are too complicated for online or doing on our own, so no help to us.”

 

“I am not interested in having this information on my devices for security reasons.”

These comments track with past concerns raised by BPC: although some Americans dream of not having to file a tax return to get a refund, doing so effectively is not as simple and easy as it might seem. Most returns are too complex to be accommodated by an IRS filing tool, making it unlikely to be able to serve all Americans. Even if the tool were to target certain populations, like EITC or CTC claimants, the IRS would not necessarily be able to help taxpayers verify complex eligibility requirements and the need to gather household composition data to receive these credits. While a new, free IRS filing tool could excite plenty of Americans, existing challenges make this unlikely to be effectively implemented in the near future.

 

Tax Refunds and Financial Security

When asked to characterize the state of their personal financial situation, over 40% reported feeling either “somewhat” (24%) or “very” (19%) financially insecure. More than a third of Americans (36%) reported feeling “somewhat” financially secure while only 13% reported feeling “very” financially secure.

Unsurprisingly, lower-income (53%) adults were far more likely to report feeling financially insecure than middle- (35%) or higher-income (26%) adults. Figure 2 breaks down how different demographic groups are feeling about their personal finances.

Figure 2: How would you characterize the current state of your personal financial situation?

Of poll respondents who filed their taxes, the majority (69%) received a refund this year. For a substantial portion of Americans, their annual tax refund has an impact on family finances, with more adults (55%) saying their refund had an impact than not (40%).

Given continued economic headwinds, it is perhaps unsurprising that respondents are using their tax refunds to address a diverse set of needs including everyday expenses, paying down debt, or building up savings to weather any future downturn. Figure 3 breaks down what percentage of different demographic groups used at least a portion of their tax refund for everyday necessary expenses.

Figure 3: Which of the following, if any, describes how you used the money that you received from your most recent tax refund ?

The findings of the BPC-Morning Consult poll offer important insights as to how tax filing and tax refunds affected American workers and families in spring 2023.