American adults appear to be confused — very confused — by the U.S. tax code.
More than half of taxpayers don’t understand many basic personal finance questions about federal income tax returns as they relate to retirement, college savings and health care, a result not much changed from previous years, based on a recent survey of more than 2,300 adults given by personal finance site NerdWallet. That is a fail by academic standards.
Indeed, more people are also delaying filing their taxes this year. Earlier this month, tax software service TurboTax issued a profit warning and said that the tax season is “forming more slowly than usual.” It cited Internal Revenue Service data which said total tax return volume through Jan. 27 was down 33% from a year ago.
One theory: They simply don’t know what they’re doing. Some 57% of taxpayers don’t know what a W-4 is, the Nerdwallet survey found, and 59% don’t know that April 18, 2017 is the deadline for making a tax-deductible contribution to a traditional individual retirement account for the 2016 tax year. What’s more, 58% of taxpayers incorrectly believe that getting a tax extension means they can delay the due date of their income tax payment.
The majority knew about tax withholdings from their paycheck, but they understandably struggled with more complex questions about Roth IRA and individual retirement accounts, says Alex McAdams, product manager at NerdWallet. People shouldn’t be too quick to celebrate an income tax refund, which averaged $2,860 in 2016. “You are essentially giving the government a free loan as opposed to having control of that money all year long and putting it in a savings account or maybe even investing it,” he says.
SOURCE: QUENTIN FOTTRELL