As American families file their tax returns, the JPMorgan Chase Institute released the first-ever daily-level event study documenting how tax refunds and tax payments affect families’ income, saving, and spending. The research, Tax Time: How Families Manage Tax Refunds and Payments, draws on data from 2015–2017 to show tax refunds are a major financial event that resets the spending patterns of families which receive them.

Among families receiving refunds—who in the years studied, represented roughly 80 percent of tax filers—29 percent have their most cash flow-positive day of the year when they receive the refund, which is equivalent to six weeks’ take–home income. Six months after receiving a refund, the average family’s spending levels have settled to new steady-state, almost seven percent higher than the pre–refund steady state.

"The receipt of a tax refund is a watershed financial moment for many American families," said Diana Farrell, President and CEO, JPMorgan Chase Institute. “Because this one–time payment is significant, resetting a family’s spending and consumption patterns for at least six months, it is increasingly important for policy makers and financial services providers to understand how American families use their refunds and how to help them make the most of this process."

The new report’s other key takeaways include:

Families put off spending and accrue credit card debt while they wait for their tax refund to arrive. On average, families use a fifth of their refund to pay down bills – mostly bills from past consumption, including credit card and healthcare bills. Furthermore, many families may be losing money by effectively extending an interest-free loan to the government in the form of tax withholdings, and then using their refund to pay down interest-bearing credit card debt they accrue over the course of the year.

• In the week after the tax refund arrives, families’ expenditures jump 74 percent above baseline.
• About one-fifth of the spending response is put toward paying down bills, including credit card and healthcare bills. Revolving credit card debt declines 7.7 percent ($177) between the month before the refund and the month after.
• Spending on durable goods doubles in the week after the refund, from $25 during a typical week to $50 upon receipt of the refund.
• Families with lower cash balances are especially likely to time durable goods spending around their tax refund, and to carry higher revolving credit card debt until they receive it.

For many families, the tax refund lasts far beyond tax season, fueling spending and saving for more than half the year, raising questions about whether families have the cash flow management tools and information they need to integrate their tax refunds into financial planning.

• A month after the receipt of the tax refund, the average family still has two–thirds of its refund either in a checking account or transferred to other accounts.
• Six months after the refund, the average family has 28 percent of the refund either transferred to savings accounts or remaining in its checking account. The average checking account balance remains elevated by $404.
• For almost half of families receiving tax refunds, the refund exceeds the sum of pre–refund balances in all of their cash accounts.

From 2015–2017, before the new tax law went into effect, the majority of families that made tax payments had sufficient funds in their checking accounts to cover these payments. These families did not cut expenditures or increase their labor income to cover the payment. Instead, they transferred cash into their checking accounts during the three weeks leading up to the payment.

• As soon as the tax payment was made, families’ expenditures and account balances settled quickly back to the original steady–state. This is true even for families who didn’t appear to have enough cash to cover their payments just a few weeks before making them.

The report leverages high-frequency, de-identified financial data from a base sample of 8.3 million families who used a Chase checking account to receive a tax refund direct deposit or make an electronic tax payment in 2015, 2016, or 2017. The Institute’s research focuses on two subsets of these families—6.5 million who received refunds and made no payments in a given year, and 1.3 million who made all of the year’s tax payments on a single day and did not receive a refund.

Click here to read the full report.