NEW YORK — Tax rebates have begun dropping into bank accounts, but in this economy, gas and groceries might trump a high-end TV, a fancy dress or a new sofa — making the checks less of an economic jump-start than the government hoped for.
The first direct deposits from the Internal Revenue Service landed in bank accounts Monday. Shoppers were already using the cash to play catch-up on the basics, such as milk and other groceries.
Analysts say the rest will probably be used to pay down debt.
Alicia Flaxman, a stay-at-home mother from Seekonk, Mass., was shopping at a Target store Monday and said she would use some of the rebate for food — cheaper items such as potatoes, not more expensive meat and fish. The rest of the money will probably go for summer clothes for her three children, she said.
“My bills are double,” she said. “I go to the supermarket, and I spend $200. I used to spend $120.”
The IRS aims to make 800,000 payments every day for the first three days of this week. No deposits will be made Thursday, and about 5 million Friday.
How you receive the rebate depends on how you filed your taxes.
Paper checks will go out beginning May 9. The exact timing for both direct deposit and paper checks depends on the last two digits of your Social Security number.
The rebates, which are expected to reach 130 million households, range up to $600 for individuals and $1,200 for married couples, plus $300 per child for eligible parents.
Eric Mossack of Spring Hill, Tenn., had his $1,200 rebate in his checking account Monday and spent some of it on clothing from Gap, Kohl’s and other stores — his first shopping spree in a few months, he said. The rest will go to car payments.
“We paid off something we owed and had a little extra to spend,” Mossack said.
But Bethany Blankley of Manhattan, N.Y., who works in public relations, said she would put the $600 she received Monday toward paying off credit cards. “The interest rates are high,” she said.
The rebates go out as the IRS finishes sending out its regular annual tax refund checks.
In an Associated Press-AOL Money & Finance poll this month, 35 percent said they would use their regular tax refunds for bills and credit card payments. That was up from 27 percent who said that a year ago.
With consumer spending screeching to a halt in recent months, the retail industry needs shoppers to splurge. That is a big challenge. Gas could reach $4 a gallon this summer, and a gallon of milk is about $4 on average as well.
“People who were eating steaks last year are now eating hamburger meat and pasta this year,” said Burt P. Flickinger III, managing director of the consumer industry consulting firm Strategic Resource Group.
