NerdWallet 2024 Tax Report

While most Americans file taxes every year, refund expectations and plans for filing vary. NerdWallet's annual tax survey finds that among the millions of filers, around half (55%) will file their own federal returns and 47% say they expect to get some kind of refund.

The survey of over 2,000 U.S. adults ages 18 and over, conducted online by The Harris Poll, found that many Americans don't know how much they'll spend on tax preparation or if they're eligible for free filing assistance. The survey also asked about approaches to tax preparation and the value of those expected refunds.

Key findings

• Filers may be overly pessimistic about their refunds. The average filer — defined as a person who plans to file income taxes for 2023 — who expects a refund is anticipating an average of $2,166. That's in line with expectations of $2,205 in last year's survey, but is substantially less than the average actual refund in 2023, which was $3,054, according to the IRS. 

• Most refunds are heading to savings accounts. About 3 in 5 filers (63%) expecting a refund say the money will go into a savings account, an emergency fund or toward retirement savings. One in 3 (33%) say they'll use it to pay down debt.

• Most filers don’t know if they’re eligible for IRS Free File. Just over 1 in 10 Americans (13%) say they know if they're eligible for the IRS Free File program, which is available for filers in households earning $79,000 or less. Those who do know their eligibility include just 14% of those in households earning less than $75,000 per year.

Americans' tax filing plans

For fiscal year 2022, the IRS processed nearly 161 million individual federal tax returns. According to our survey, nearly 9 in 10 Americans (86%) say they'll file a tax return for 2023. Of those filers, 55% say they'll prepare their taxes themselves. A further 34% say they'll pay a tax preparer to manage the process, while 10% say they'll have their taxes prepared by a friend or family member.

The chance a filer will use a tax preparer increases with income. About a quarter (28%) of filers in households earning under $50,000 per year say they'll pay a tax preparer, while 35% of those in households making over $100,000 say the same.

Paying for tax preparation also increases along generational lines. Of Generation Z filers, 15% say they'll pay a tax preparer. Among millennials, 26% say the same thing, while 33% of Generation X and 46% of baby boomers say they'll pay for a tax preparer to do their taxes. Possibly due to being new to the workforce or due to living with parents, 25% of Gen Zers say they'll have a friend or family member do their taxes.

About 2 in 5 Americans (37%) say they'll file their taxes early. Boomers were the generation most likely to say they would get ahead of things (43%), while younger generations were less likely to say the same. A third (32%) of Gen Zers, 35% of millennials and 34% of Gen Xers say they plan to file early.

“The IRS implemented several changes in 2022 that will impact 2023 tax filings. Some of those changes include increases to tax brackets, retirement account contribution limits, and the standard deduction,” says Elizabeth Ayoola, personal finance expert and writer at NerdWallet. “These changes could mean increased savings and a lower tax bill for some consumers. To enjoy the full benefits of these IRS changes, consider early tax planning.”

Software prep

Among those preparing their own federal returns, 84% say they'll do so using some kind of tax preparation software. Millennials (53%) and Gen Xers (52%) are more likely than Gen Zers (38%) and baby boomers (39%) to say they'll use either paid or free software to prepare their own tax returns.

Of those who say they plan to use software to prepare their taxes, just 62% say they trust tax software companies with their personal information. The percentage of software users falls to just 37% when looking at the entire U.S. population.

About 1 in 10 filers (9%) plan to skip the software and either use the IRS's fillable forms or good old-fashioned paper forms when preparing their return. This is especially true among Gen Z filers, about 1 in 5 (17%) of whom say they'll use fillable forms or paper forms when filing.

Concerns about filing

The IRS audits around 0.4% of tax filers, according to the Transactional Records Access Clearinghouse at Syracuse University. That's a small percentage, but the fear of an audit or of facing a penalty for making mistakes when filing taxes still looms large.

About 4 in 5 tax filers (83%) say they would be worried about repercussions if they filed their tax return incorrectly, with 17% fearing an audit. Having to pay more in taxes was the most common concern (29%), though.

Gen Zers are especially worried about repercussions. Almost every Gen Zer (92%) says they would be worried if they discovered they filed their return incorrectly, with a surprising proportion worried about facing criminal or fraud charges (20%). That worry is much less present in other generations — only 11% of millennials, 6% of Gen Xers and 5% of baby boomers expressed that concern.

Expectations for refunds and bills

About half (47%) of filers say they expect a refund for their 2023 federal filing, 32% say they'll break even and 21% think they'll owe the IRS more money. Baby boomers are the least likely (37%) to say they expect a refund, while Gen Zers (49%), millennials (60%) and Gen Xers (47%) are all more optimistic.

Filers expecting a refund anticipate $2,166 on average, while the median expected refund is $1,100. This is little changed from our 2023 survey, when filers expected an average refund of $2,205. Men expect a larger refund than women, expecting $2,265 on average compared to $2,089.

There's also an expectation gap between those who are parents of children under the age of 18 and those who aren't. Parents with children under 18 are expecting $2,810 back while those without younger children predict a refund of $1,757.

In reality, the average 2022 tax refund across all filers was $3,054 as of October 2023. That's 39% more than respondents to our last year's survey expected, on average.

“Tax refunds can help materialize financial goals, be it paying down debt, bulking up an emergency fund, or saving for a vacation,” says Ayoola. “Early tax planning can help provide a clear picture of your tax refund amount and help set your financial plans for the year in motion.”

For filers who expect to owe the IRS money, the average estimated bill is $2,587. That's in line with last year's expected bill of $2,538. Men, who expect to receive more, also expect to owe more than women this year — $2,822 compared to women's average expectation of $2,278.

Plans for refunds

Those expecting refunds have a range of plans for the cash, but putting it into savings is the easy leader with about 3 in 5 (63%) saying they'll put their refund into some kind of savings account (personal savings, an emergency fund or retirement savings).

A third (33%) say they plan to pay down debt with their refund. Credit card debt is the most common option — 70% of those who plan to pay down debt will put some money toward a card balance.

A similar percentage of refund recipients (34%) say they plan to catch up on bills. In 2023, the Census Bureau reported that 40% of Americans were struggling to keep up with their usual household expenses, making this an unsurprising hot spot for refunds. Saying they'll catch up on bills is less popular among baby boomers (13%) than it is among Gen Zers (38%), millennials (46%) and Gen Xers (38%).

At the bottom of the list: treating themselves to a gift (15%), paying for a trip (14%), paying for a major expense (12%) and investing in the stock market (11%).

Preparation hesitations

We found that many Americans have hesitations about filing their taxes, with some feeling as if they lack the information they need to make an informed decision. For instance, just a quarter (27%) of Americans say they know how much it will cost them to prepare their taxes. That’s true even among those who plan to use tax software to file their returns — just 26% say they know what they'll pay.

About 1 in 10 Americans (11%) say they're worried they'll overpay in taxes if they prepare their filing themselves, while 14% say they're worried about tax scams or fraud — including 22% of Gen Zers.

Lack of information around Free File

Many Americans who could be filing their taxes for free by using the IRS Free File system say they don't know if they're eligible. Free File, which is made available to anyone earning 70% or less of the U.S. average gross income, is a vastly underused option.

According to the Government Accountability Office, just 3% of taxpayers used Free File in the 2022 tax season. That may be because, according to our survey, just 13% of Americans say they know if they're eligible.

In fact, 86% of those in households making under $75,000 don't know if they're eligible for Free File. Those households are almost all likely to be eligible, as the limit for 2023 filers is $79,000.

Nerdy takeaways

Understand the tax resources that are available. The IRS Free File system isn't the only support the government gives to filers. The IRS's Volunteer Income Tax Assistance can help filers making under $60,000, those who don't speak English and those with disabilities. The program uses trained and tested volunteers who can help individuals prepare their own returns.

A similar program is available for older people through the IRS's Tax Counseling for the Elderly program. This program assists filers ages 60 and older and uses the same kind of volunteers, trained and ready to help.

Find the right software for your return. Selecting tax software isn't as simple as picking the first thing on a recommendation list. Each company walks users through returns in different ways, and many have different flavors of software for different financial situations (self-employed, investors, estate trustees, etc.). There are also a range of pricing options.

“Whether you plan to DIY by using software, paying a tax preparer, or enlisting the help of family or friends, it’s beneficial to start planning for taxes early. Deciding early on how you want to file your taxes can help minimize the likelihood of stress and expensive errors,” says Ayoola.

Hope for the best and plan for the worst. While millions of Americans may think or hope they'll get a refund, there are many who will be surprised by a tax bill. Making a plan for paying any potential bill now can help you when April rolls around.

If you can't pull together the money you need, there are options. The IRS offers payment plans for Americans who need more time to pay their bills. Depending on how long you need and how large your bill is, the IRS will charge different fees and penalties.

Methodology

This survey was conducted online within the United States by The Harris Poll on behalf of NerdWallet from Jan. 2-4, 2024, among 2,058 U.S. adults ages 18 and older. The sampling precision of Harris online polls is measured by using a Bayesian credible interval. For this study, the sample data is accurate to within +/- 2.7 percentage points using a 95% confidence level. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact [email protected].

Generations are defined as: Generation Z (ages 18-26), millennials (ages 27-42), Generation X (ages 43-58) and baby boomers (ages 59-77).

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