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Americans Closely Divided On the Merits of Overpaying Uncle Sam

Americans Closely Divided On the Merits of Overpaying Uncle Sam

Nearly half choose to overpay in order to get a tax refund

GALLUP NEWS SERVICE

PRINCETON, NJ -- Ben Franklin may have equated taxes with death, but nearly half of Americans perceive an upside to this oft-maligned obligation. According to a recent USA Today/Gallup poll, 45% of Americans say they would ideally pay more in federal taxes than they owe during the year so they can receive a refund check in the spring. Only slightly more, 50%, prefer to break even on their taxes. Many Americans find that overpaying the IRS is a useful way of acquiring savings or funds to pay off big expenses; others prefer the security of knowing they won't have to write Uncle Sam a check on April 15.

Americans who prefer getting a tax refund are about equally divided between those favoring a large refund (24%) and those preferring a small refund (21%). Thus, Americans break into three broad groups in their orientation toward paying taxes. 

Overpaying is particularly attractive to middle- and low-income Americans. Only 37% of adults living in households making $75,000 or more per year say it is best to receive a tax refund. This jumps to 47% of those earning between $30,000 and $74,999 and 51% of those earning less than $30,000. Further, high-income earners who favor a refund lean toward wanting a smaller refund, while low-income earners would prefer a larger refund. 

Although the plurality of Americans would ideally pay just what they owe in taxes -- no more, no less -- only 12% actually achieved this last year, according to Americans' self-reports of their 2006 IRS filing. The majority of Americans received either a small (37%) or large (18%) refund while 23% owed additional taxes.

Thinking back to the tax return you filed last year, which of the following applied to you -- [ROTATED: you received a large tax refund, you received a small tax refund, you basically broke even, you had to pay a small amount of taxes, (or) you had to pay a large amount of taxes]?

2007 Mar 2-4

%

Received a large refund

18

Received a small refund

37

Broke even

12

Had to pay small amount of taxes

13

Had to pay large amount of taxes

10

DOESN'T APPLY/DON'T FILE (vol.)

8

No opinion

2

A Windfall by Design

Lending Uncle Sam interest-free money doesn't make sense on paper. Accountants don't like it, as exemplified by the American Institute of Certified Public Accountants which advises, "When determining the correct withholding amount for your salary or wages, your objective should be to have just enough taxes withheld to prevent you from incurring penalties when your tax return is due. (You may owe some money at the time you file your return, but it shouldn't be much.)"

That advice works in an ideal world where taxpayers would save the money they are not otherwise paying to the government. In reality, Americans are saving at historically low rates (the lowest since the Great Depression) and actually spent more than they earned in 2006, yielding a savings rate of -1%.

Thus, in realistic terms, many Americans find overpaying a useful mechanism for creating a rainy day fund. Specifically, 39% of refund-oriented Americans say that getting a refund check is like receiving a bonus or a reward. Another 17% say paying more taxes than they owe is a type of forced savings when they are otherwise not good at saving. Next, 11% say they prefer to pay more in taxes than necessary to be on the safe side, as they don't want to owe any money. Other reasons given include using the money to help pay bills (5%), to pay state and local taxes (4%), and splurging on something such as a major purchase (3%) or a vacation (1%).

(Asked of those who prefer to get a tax refund) What are some of the reasons why you prefer to receive a tax refund rather than breaking even?(OPEN-ENDED)

           

2007 Mar 2-4

%

It's like getting a bonus/reward/nice to get extra money

39

Forced savings/not good at saving otherwise

17

To be safe/conservative/don't want to have to owe

11

Believe taxes are too high

11

Helps with paying the bills

5

Use to pay state/local taxes

4

Use it to buy something wouldn't otherwise/special purchase

3

Use it on a vacation

1

 

Other

11

No reason in particular

4

No opinion

3

Percentages add to more than 100% due to multiple responses.

When Americans are asked what they have been most likely to do with past refund checks they received, the largest segment (38%) reports using the money to pay a major bill. One-quarter of respondents put it into a savings account or an investment account, and 12% spent it on a major purchase or vacation. One in five Americans say they didn't do anything special with the money.

Now thinking more generally, what have you been most likely to do with tax refund money you have received in the past -- put it in a savings account or invest it, use it to pay a major bill, spend it on a vacation, spend it on some other major purchase, or did you not do anything special with it?

2007 Mar 2-4

%

Put it in a savings account or invest it

24

Used it to pay a major bill

38

Spent it on a vacation

5

Spent it on some other major purchase

7

Not do anything special with it

20

 

DOESN'T APPLY/DON'T FILE (vol.)

4

 

No opinion

2

Nearly half of low-income earners (48%) say they are most likely to use tax refund money to pay a bill, but even 31% of upper-income earners use the money for this purpose. Upper-income Americans are twice as likely as those earning less than $30,000 to save the money (31% vs. 16%), and are much more likely to use it to go on a vacation (10% vs. 1%).

Survey Methods

Results are based on telephone interviews with 1,010 national adults, aged 18 and older, conducted Mar. 2-4, 2007. For results based on the total sample of national adults, one can say with 95% confidence that the maximum margin of sampling error is ±3 percentage points. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.


Gallup https://news.gallup.com/poll/27169/Americans-Closely-Divided-Merits-Overpaying-Uncle-Sam.aspx
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