Getting a bigger tax refund? Here’s how to use it wisely

For many people, a tax refund is the largest lump sum of cash they will see all year. This filing season, those refunds may be noticeably larger.According to economic analysis cited by the nonpartisan Tax Foundation, average refunds in 2026 could be $300 to $1,000 higher than in a typical year, largely because recent tax law changes reduced many taxpayers’ overall liability while paycheck withholding was not fully adjusted.That can make the money feel like a windfall, but financial experts say treating it that way can lead to costly mistakes.”The worst thing that people can do with their income tax refunds is to splurge and treat it like found money,” said Mark Hamrick, senior economic analyst at Bankrate. “As if they didn’t know it was coming, or they don’t even have to think about their intermediate and long-term financial needs.”Hamrick says the first priority for many households should be credit card debt.Nearly half of credit card holders carry a balance, according to Bankrate research. Average annual percentage rates on credit cards are around 20% or higher, depending on the borrower.”Credit card debt is the most expensive form of debt that most people have on the books,” Hamrick said.Paying down high-interest balances can provide a guaranteed benefit by eliminating the interest charges that would otherwise continue to accrue. But debt is not the only concern.”Most Americans cannot pay an emergency expense of $1,000 or more from savings,” Hamrick said.If you do not have an emergency fund, directing at least part of your refund into a high-yield savings account can help build a financial cushion and reduce the need to rely on credit cards in the future.Hamrick says it does not have to be an either-or decision.”In a perfect world, you’re doing both,” he said. “You can split it absolutely between some of your credit card debt and your emergency savings.”Once high-interest debt is under control and emergency savings are in place, investing may be appropriate.Hamrick says you should also consider any short-term financial needs.”If you think that you have a major expenditure that might be coming down the road, aside from your emergency savings or your rainy-day fund, think about squaring that money away as well,” he said. If you consistently receive a large refund every year, it may indicate that too much tax is being withheld from your paycheck.Adjusting your withholding could allow you to keep more of your income throughout the year instead of waiting for a refund.The IRS offers a free online Tax Withholding Estimator to help taxpayers determine whether they should update their Form W-4 with their employer.Withholding should also be reviewed after major life events, such as marriage, divorce, the birth of a child or significant changes in income.Stay Connected With the National Consumer UnitGet clear, actionable consumer reporting delivered across platforms.Follow National Consumer Correspondent Allie Jasinski for real-time updates, money-saving tips and behind-the-scenes reporting on Instagram, TikTok and YouTube.