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How much do Americans depend on their tax refunds? Quite a lot, it turns out.

Americans tend to make their tax refunds last, data show, with the average outlay adding up to about six weeks of pay. (Keith Srakocic/AP)

Tax refunds sustain American families for months after their initial boost on bank accounts, a recent study shows, which might make 2019 a tough year for some taxpayers.

The average refund, which amounts to nearly six weeks’ take-home pay for the typical household, is crucial to a family’s financial stability, the JPMorgan Chase Institute study found. But in mid-February, the IRS said Americans could see their refunds diminish by as much as 9 percent this year because changes in the tax code have made it so less is withheld from paychecks. The change could have a ripple effect, as families depend on the tax season windfall to pay down debt, make major purchases or cover big outlays like out-of-pocket health care expenses.

“For about 30 percent of families, this ends up being the single largest cashflow infusion of the year,” said Fiona Grieg, director of consumer research for the JP Morgan Chase Institute, who worked on the study. “This is really a moment that resets their spending levels . . . it does play a key role in creating a savings buffer that families rely on for the better part of a year.”

IRS says average tax refund is down nearly 9 percent so far this year

The report is based on tax information and bank transactions of about 1 million families who actively banked with Chase from 2015 to 2017. About 80 percent of families received one or more refunds in that three-year window. By and large, these families skewed younger and lower-income, and also had less in savings than families who had to make tax payments. The average refund for families in the study was $3,602.

“Lower income families and those with lower cash balances are especially likely to time durable goods spending around their tax refund and carry higher revolving credit card debt until they receive it,” the report states.

For about half of families in the study, the refund exceeds the existing balances of their cash accounts. These families more than triple their cash withdrawals, non-Chase credit card bill payments and durable goods purchases the week after they receive their first refund. Despite the spike in post-refund spending, the study shows that most families spread out the payout, and still have about 28 percent left after six months.

But those who time their big purchases around refunds might be in for a nasty surprise this year.

“For a long time, there was a pretty steady refund and people could count on getting about 10 percent of their income in the refund, and the other 90 percent in paychecks,” Grieg said. “Now, if that split is more like 92 percent in paychecks and 8 percent in the refund, you may find you don’t have what you were explicitly or implicitly planning to budget for big ticket items.”

However, the IRS’s forecast for reduced refunds was based on information from early filers, and these people generally earn less than the average taxpayer. New IRS data show returns are growing, to more than $3,140 as of Feb. 22. That’s $40 more than last year.

About 20 percent of families in the study had to make tax payments, but doing so had little impact on their overall financial standing. Payments for most families were worth about two and half weeks of take-home income, and most had enough cash on hand to cover what they owed.

Between money returned through refunds and money paid to the Internal Revenue Service, more than half-a-trillion tax-related dollars flow through American financial accounts each spring, accounting for about 2.5 percent of the U.S. GDP. But that number is also likely to drop this year, as roughly 80 percent of Americans will pay less in their 2018 taxes because of a Republican tax law, widely considered to be one of the Trump administration’s biggest achievements.

Though the Trump administration contends that smaller refunds actually translate to lower overall tax bills, many Americans are angry. Some blame the Republican tax law and have taken to venting on social media using the hashtag #GOPTaxScam. But by financial standards, a dependence on tax refunds isn’t necessarily in anyone’s best interests.

“It is actually better if the withholding schedule is a little less aggressive and people are likely to receive a smaller refund, because that means they’re getting access to bigger paychecks throughout the year,” Grieg said. “It’s actually a better place for people to be financially than what we observe with all the extra withholding.”