The American cities where taxpayers receive the biggest tax refunds have been revealed, following the analysis of Internal Revenue Service (IRS) tax filing data for 2018.
While the pushing back of the tax filing deadline to July 15 due to the coronavirus may mean the best online tax software (opens in new tab) can lay unused for a little longer than usual this year, the COVID-19 outbreak has also ensured that tax refunds will take on a whole new level of importance for millions of American households that have seen their incomes take a devastating hit.
For those affected the worst, any unexpected bill or expense could prove a tipping point or see people look to credit cards (opens in new tab) and personal loans (opens in new tab) to help see them through. However, encouragingly, one thing that the majority of taxpayers currently have in their favour is that they are owed money by the IRS - and thankfully not the other way around.
Who receives the biggest tax refunds?
Indeed, according to analysis by MagnifyMoney.com, three-quarters (75%) of taxpayers received a refund from the IRS after overpaying their taxes in 2018, compared with 21% who ended up owing money. What is more, the average refund received by those who had overpaid amounted to the not insignificant sum of $2,955.
In terms of who - or rather where - benefitted the most, the study found that residents of Midland, Texas, received the most money back from the IRS when they filed their 2018 tax returns, enjoying an average refund check of $3,800. Furthermore, the analysis - which covered 157 of the largest U.S. metro areas - found that Texas played host to the cities with the second and third highest refunds too, with the taxpayers of Houston getting back an average of $3,735, and those living in McAllen typically receiving $3,604.
|Metro||Average refund||% getting a refund|
|Cape Coral, Fla.||$3,439||68%|
|Corpus Christi, Texas||$3,355||82%|
Noting a wide disparity in both the likelihood of receiving a refund and the average refund amount among major American cities, the personal finance site said that metro areas in states with no state income tax were more likely to be the places where refunds are larger. Indeed, of the 10 metros with the largest refunds, eight were in Texas and Florida, neither of which have state tax on personal income.
There are a further five states - Alaska, Nevada, South Dakota, Washington and Wyoming - that also decline to operate a system of state tax on income, while New Hampshire and Tennessee only tax investment income.
On the flipside, while fewer taxpayers owe when they file, the typical amount that is due to the IRS is higher than the average refund. In addition - and perhaps serving as a warning for the future - the average amount owed at filing in 2018 of $5,903 was some 8% higher than the average owed in 2017.
Eight of the top 10 metros where taxpayers owed the IRS most were in the West, specifically in the Pacific and Mountain time zones. Meanwhile, San Francisco took the dubious honour of playing host to the largest percentage of filers who ended up owing, and so would seemingly benefit the most from investing in the best personal finance software (opens in new tab).
Should you wait until July 15 to file?
As a concession to the COVID-19 outbreak, the IRS has extended the filing deadline this year to July 15. However, of the 155 million Americans who will still file their 2019 federal tax returns this year, more than 111 million are expected to receive a refund.
It stands to reason that most taxpayers expecting a refund would therefore benefit by filing sooner rather than later. By comparison, those taxpayers who are likely to owe tax could have some leeway that might prove useful, as deferring filing federal income tax payments to July 15 should not result in extra interest or penalty, regardless of the amount owed.
That said, taxpayers should double-check the situation in their state, just to make sure that the deadline has definitely been extended for them, and that interest and penalties are being waived.
How filing may affect your coronavirus stimulus check
The coronavirus stimulus checks that are landing in American's accounts (opens in new tab) is another factor that could play a part in the decision to file now or delay. For some taxpayers, putting off filing until July could see a larger stimulus payment land in their accounts than if they looked to file now.
Find out whether you qualify for the coronavirus $1,200 stimulus check (opens in new tab) and what you need to do to make sure you don't miss out.
One group who might find it advantageous to hold fire on filing are those who were single status filers in 2018 with an adjusted gross income (AGI) of less than $75,000, but who have seen their AGI rise beyond $75,000 this year.
Alternatively, you may want to file as soon as possible if your income declined in 2019. If a single filer’s AGI was greater than $99,000 in 2018, but less than $99,000 this year, the filer’s coronavirus stimulus check may be based on those higher 2018 earnings.
Regardless of whether you look to file sooner or later, what the study does highlight is the importance of staying on top of your tax using the best online tax software. An end to the coronavirus uncertainty does not realistically appear in sight, and the last thing most people will need in the near future is an unwelcome demand from the IRS.