Experts say small tax refunds are a good thing, but a look at how Americans spend the cash explains why they don't feel the same

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Nothing feels better than money in the bank.

• Tax Day 2019, the last day to file your 2018 tax return, is Monday, April 15.
• In February, early filers were seeing smaller tax refunds than last year, but by the fourth week of filing season refund amounts have caught up, and even surpassed, 2018 figures.
• Americans rely heavily on tax refunds as a way to reset their finances and force savings, experts say.
• A new JPMorgan Chase Institute report found that refunds often fuel a family's spending for months.

As much as Americans loathe filing taxes, we love - nay, we depend on - a sizable tax refund.

In the first weeks of the 2019 filing season, frustration mounted among taxpayers as average tax refund size trailed behind last year's figures. Many blamed President Donald Trump and the GOP's Tax Cuts and Jobs Act (TCJA), rallying around #GOPTaxScam on Twitter.

But new data from the IRS released on February 28 showed the size of the average tax refund issued has not only caught up to 2018 but also surpassed it, Business Insider's Bob Bryan reported.

The average tax refund through the first four weeks of the tax season was $3,143, according to the data, up 1.3% from the $3,103 average refund over the same time period in 2018.

"For many - perhaps most - Americans, it's their only realistic shot to 'reset' and build up this level of reserve," Timothy Flacke, executive director at Commonwealth, a nonprofit promoting financial literacy, told Business Insider.

Tax reform impacted refund sizes, but probably not in the way many people think. The TCJA issued new withholding tables, which tell employers how much money to take out of an employee's paycheck for taxes. If they withhold too much throughout the year, the employee will get a refund. If they withhold too little, the employee will owe money when they file their tax return.

Read more: Democrats claim the decline in Americans' tax refunds is proof the GOP tax law screwed over the middle class - but the truth is more complex

Receiving a smaller refund or owing money to the IRS doesn't necessarily mean you had a higher tax bill than before the new tax law. In fact, middle-class Americans, on average, saw their taxes go down for the 2018 tax year.

"While the government did encourage taxpayers to do a paycheck checkup to ensure withholding was adequate, taxpayers believed since tax reform was sold as a tax cut that if they did nothing they would, at a minimum, not experience a decreased tax refund," Francine J. Lipman, a tax law professor at the University of Nevada, Las Vegas, told Business Insider.

So despite a paycheck boost, why are so many Americans seemingly still desperate for a big refund?

While many financial experts consider a refund an interest-free loan to the government, typical Americans don't see it that way. As Lipman puts it, "a lump sum is valued over small periodic increments." 

"The frustration with lower tax refunds because withholding was reduced is that taxpayers didn't value the increased net pay during the year for a number of reasons, including it might have been offset with other increased costs like healthcare premiums, state taxes, local sales and property taxes, or payroll taxes, housing costs, food, etc. so that the net gain was minimal or perhaps they actually experienced less of a net loss," Lipman said.

How Americans spend their tax refunds show why they're so important

JPMorgan Chase Institute recently studied the financial accounts of 1 million families who received tax refunds or made tax payments in 2015, 2016, and 2017. It found that refunds are "a major financial event for a significant fraction of families who receive them."

According to the data, the average family who received a refund got about $3,600, which is equal to an average of 5.7 weeks worth of take-home pay, calculated using the average income amount of nearly $50,000. About 35% of families received multiple refunds, likely one from the federal government and one from their state government.

"For many of these families, that cash infusion fuels expenditures for more than half the year, and resets their spending and saving patterns," write the report's authors Diana Farrell, Fiona Greig, and Amar Hamoudi.

For almost half of families that get tax refunds, the refund amount itself is higher than all cash account balances combined pre-refund. What's more, half of those families received a first refund worth more than four times the amount of cash they had at the end of the prior calendar year, the authors found.

They found that in the week after a family's first refund is deposited, the biggest spending increases were for cash withdrawals, credit-card payments, and durable goods purchases (like a TV or refrigerator), which all increased by at least 85% from the previous week.

Read more: After someone stole my tax refund 2 years ago, I found the best way to protect myself is also the easiest

Not only do refunds help families pay off debt and buy big-ticket items, they're a method of "forced savings," Lipman said.

Indeed, the JPMorgan Chase Institute report found that "one week after receiving their first tax refund of the year, families on average have about 74% remaining either in their checking account or transferred to saving accounts. Six months later, they still have 28% of their tax refund remaining."

As Todd R. Yarbrough, an economics professor at Pace University, wrote on Twitter, a tax refund was a "refuge" and a "piece of mind" for his single, working father.

"Christmas and birthday gifts, but more importantly large expense like car repairs or medical procedures, we often put off until early March when he'd get the refund check. Overpaying his taxes were a form of savings," Yarbrough wrote.

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