Your tax refund could be bigger this year: What the experts say to do with it

Travelers at Miami International Airport paid for a vacation with their tax refund. (Lynne Sladky/ AP Photo)

According to the most recent IRS data, the average taxpayer gets a $2,852 refund, $75 more than last year.

A tax refund is typically the “biggest extra windfall of the year,” said Courtney Alev, consumer financial advocate at Credit Karma.

“We see a propensity to consider tax refunds something to splurge. One in four taxpayers see it as free money and plan to spend it on something they would not otherwise,” she said. “While this behavior is entirely understandable, given how hard up people are — with the rising cost of living and high interest rates, the best thing you can do is use it as an opportunity to advance your financial goals. By setting clear financial goals and planning how to use your tax refund, you can take control of your financial situation and feel empowered about your future.

Emily Garcia, 30, said she and her husband, with whom she filed jointly, were refunded about $1,000 and spent the money on patio furniture. They had been planning to buy the furniture for a while but were waiting for a windfall like their tax refund to make the purchase.

Though Garcia and her husband bought a house two years ago, which they’re still paying off, they decided not to use the refund toward their mortgage.

“The debt’s not going anywhere,” said Garcia. “A thousand dollars is not going to make a dent. But it’s a good amount to buy something like furniture.”

As of late last month, the IRS had processed about 141 million returns and refunded roughly $261 billion to taxpayers, 2.2% more than in 2023.

Matt Schulz, chief credit analyst at LendingTree, echoed the idea that paying down debt and contributing to savings are the two most financially sound uses of a tax refund. He said people should do both simultaneously rather than choosing between the two. While it may require some discipline and sacrifice in the short term, this strategy can lead to significant long-term financial benefits, providing hope and motivation for the future.

Said Alev: “Life is short; we want to reward ourselves. Our best tip is to use that refund to get your financial life on track. At the treetop, that’s what we’re seeing and advising.”