Last week, the Trump administration ordered at least 30,000 furloughed IRS employees to return to work without pay, but hundreds of IRS staffers from Utah to Long Island, New York, are reportedly skipping work, according to a Washington Post report. Some employees have chosen not to work as part of a coordinated protest, others because of financial hardship—they can’t pay for childcare or they can’t afford to get to work. Fewer IRS workers on the job means there could be a delay in processing tax refunds.
How you usually get your tax refund
Just as you wouldn't look a gift horse in the mouth, most taxpayers don't question too hard why they receive a check from Uncle Sam every year after filing their taxes. But with the government shutdown endangering the prompt delivery of that extra bit of income, you may want to understand what a tax refund actually is (at the very least it may distract you from your anger and disappointment over the possible delay).
Throughout the tax year, you pay income tax to both the federal government and a state government. However, the amount most Americans pay typically exceeds their tax liability, or what they actually owe in taxes. The reasons for this can be complex, but for most people the refund is the result of not taking the time to claim all of their tax exemptions on a W-4 form—the important document everyone has to fill out when starting a new job. The W-4 tells the employer how much of your paycheck to withhold for taxes, and if you're too distracted (or simply can't be bothered), it's easy to breeze through this form and not claim exemptions for the childcare you pay for (as an example).
The good news is that the IRS has a legion of workers who correct your error at the end of the tax year after you file your tax returns, and remunerate you the difference. The bad news is that this year, that workforce is understaffed and unpaid, which doesn't bode well for workplace efficiency. Hence, the possible delay in receiving your tax return.
The best way to estimate when your tax refund will arrive is to keep an eye on the government shutdown news and to use a 2019 Tax Refund chart. While millions of Americans await word on this year’s IRS refund status, develop a wise strategy for spending your refund.
What to do with your tax refund
A recent study by GoBankingRates revealed that 27% of Americans taxpayers plan to use their tax refunds to pay off debt, with 38% of millennials saying debt repayment is a priority as far as their tax refunds are concerned.
When it comes to developing a strategy for using your tax refund, debt repayment and saving money for the future should be high on your list.
Eliminate high-cost debt. The average tax refund in 2018 was $2,899, according to the IRS, enough to eliminate more than 50% of the average U.S. credit card balance—$5,700, according to a ValuePenguin analysis.
If your tax refund won’t eliminate all of your high-cost debt and you have a good credit score, consider a balance transfer credit card that offers zero interest for a limited time, usually between 12 and 18 months, to pay off the remaining balance.
Pay down auto and student loans. After you’ve paid off your high-interest debt and created an emergency fund, free up some money each month by paying down or, better yet, paying off your auto and student loans. The average student loan debt in the U.S. is $32,731. If your tax refund won’t cover the balance on your student loans, consider refinancing them, which can be a huge money saver.
In 2018, the average car loan for a new vehicle was $31,099, a $515 monthly payment. The average loan for a used car was $21,375, or $398 a month. After you’ve applied your tax refund to your auto loan balance, if there’s still an outstanding balance, refinancing the loan could help you save some money.
Establish a financial cushion. It’s important to have an emergency fund that will cover at least three to six months of expenses. Low-risk options for stashing away your cash include a savings account, which offers liquidity and requires little in the way of maintenance. The Federal Deposit Insurance Corporation (FDIC) insures savings accounts for up to $250,000 per depositor per bank. Another option is a money market fund, which is very liquid, easy to use and offers a yield comparable to a savings account.