MW Americans are spending their tax refunds differently this year - and it says a lot about this economic moment

Andrew Keshner

The average refund is now $3,116, the IRS says

When Andrew Gonzalez received a refund of $1,245 from his federal and California income taxes this year, he used the full amount to pay off the loan on his 2022 Honda Civic Sport in February. The 26-year-old security shift supervisor was dead set on paying off the three-year loan as fast as possible, and the unexpected refund came at just the right time.

"I see debt as a wealth killer, and eliminating it was a top priority for me," he said. Gonzalez was pushing himself to pay more than double his $300 minimum monthly payment. With $4,000 left on the balance, he combined the refund with savings to end the obligation. "The tax refund helped close the final gap," he said.

Many Americans swimming in high prices and deepening debts are turning to their income-tax refunds as a life jacket. Tax refunds are the biggest single payment some people receive all year; common uses for the money include both necessities and big purchases like cars and trips.

But the mood is different this year: Refunds are becoming debt fighters and savings builders at a tenuous moment for consumer confidence and the U.S. economy as a whole.

Tax Day, the April 15 deadline to file a return or claim an extension, is upon us. With volatile stock markets and President Donald Trump's tariffs stoking economic uncertainty, and the share of credit-card holders paying just the monthly minimum growing at a record-breaking pace, using a refund to decrease debt or increase savings may sound even more appealing for last-minute filers.

Polling suggests many other people are thinking like Gonzalez. In the National Retail Federation's annual look at tax-refund spending plans, almost half of respondents said they planned to put their refund money this year toward savings, compared with 28% in 2024. One-third said they wanted to use their refund to reduce debt, compared with 20% who said the same last year.

A separate Credit Karma survey conducted last month found that 49% of people said they were depending on their refund to make ends meet more this year than in years past. Of those who had already received their refund, 64% said they used a method to access the money early. Among millennial and Gen X poll participants, 30% said they were planning on the money to pay important bills.

In the slew of polling this year, "we just saw a common thread that there's more focus on financial responsibility instead of spending on vacations and things like that," said Lisa Greene-Lewis, a certified public accountant and tax expert at TurboTax. (TurboTax and Credit Karma are both owned by Intuit $(INTU)$.)

Managing debt and credit is now one of the top priorities for people across the income spectrum, including ultra-high-net-worth households, according to Emily Irwin, head of Wells Fargo's Advice Center.

"It doesn't really matter how many zeros you have - people really want to clean up their balance sheet," Irwin said, pointing to first-quarter customer feedback and financial goals shared through the bank's app.

One tax-angled goal Irwin is seeing is to reduce debts by April 15. Other tax-related questions, like adjusting withholdings, suggest an attention to cash flow. To Irwin, the sharpening focus on debt is a good sign rather than a distress signal. "It shows people are in tune with their finances," she said.

How to make the most of a higher-than-usual tax refund

The IRS has issued 67.7 million refunds so far this year. The average refund is now $3,116, 3.5% higher than it was at the same point last year, according to the agency.

Combined federal and state tax-refund amounts are somewhat higher year over year, according to Bank of America researchers. Those slight gains are showing more in refunds to low- and middle-income households.

There weren't major tax-law changes in 2024, and the major debate right now is what the federal income-tax rules will be in 2026 after the 2017 Trump tax cuts expire. So why the increase in refund amounts?

Part of the explanation is that slightly fewer people have filed their returns compared with the same time last year, said Greene-Lewis. As the IRS gets more returns, that may lower the average, she noted. The tax code's upward adjustments for inflation may also be playing a role, said Greene-Lewis; if household income doesn't keep up with inflation, slightly less money is subject to tax and can translate to more paid back in a refund.

To maximize their refund, last-minute filers should amass all their tax forms and needed records. Some filers may still be able to make deductible IRA contributions, Greene-Lewis said. Taking a beat to be accurate and complete on taxes goes a long way, she added.

Last-minute filers should also plan ahead on how to use any refund they receive, said Irwin. Without that deliberation, the psychological rush of seeing the refund may lead to impulse spending. "Once it hits your checking account or savings account, it becomes much more difficult to remind yourself of that commitment," she said.

The downside of tax refunds

An income-tax refund is the sum of money a taxpayer has overpaid in taxes throughout the year, following the calculation of income, deductions and credits. In other words, the taxpayer is being repaid an interest-free loan they gave to the government.

Angling for a refund could help force a person to save money that would otherwise have been spent. That may be a win for someone who's had difficulty building savings, especially when costs are high.

Yet many other people try to avoid refunds. For them, the lump sum represents extra money they've paid in taxes that could've been used for other money goals.

Last year, Gonzalez received a refund of just $17. This year's unexpected increase likely occurred because he worked overtime shifts and didn't change his withholdings, his tax preparer explained.

"It's something I plan to adjust moving forward so I can better optimize my finances and avoid giving the government an interest-free loan," he said.

In fact, Gonzalez added, if he had received a tiny refund instead of the larger sum this year, the extra money "would have gone towards the debt sooner."

-Andrew Keshner

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April 12, 2025 11:00 ET (15:00 GMT)

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