Your Tax Refund Is Bigger This Year. Here's the Right Way to Spend It.

The IRS is reporting average refunds of $3,804 so far this filing season — a 10.2% jump from 2025's average of $3,453. That's real money. And a lot of people are about to make decisions about it that they'll regret.

Before we get into what to do with your refund, let me say the quiet part out loud: a tax refund isn't a bonus. It's your own money that the government held for free all year. You gave the IRS an interest-free loan. So before you feel too celebratory about it, know that the ideal goal is actually to get your refund as close to zero as possible — because that means your withholding is dialed in and you're keeping your money all year instead of letting the government sit on it.

That said — $3,804 is in your account. Let's put it to work.

The Order of Operations

This is not a suggestion. This is the financially correct sequence, in priority order.

1. High-interest debt first. If you have credit card debt carrying a 20%+ APR — and many Americans do — put the entire refund there. The math is unambiguous: there is no investment that reliably returns 20% risk-free. Paying off a 22% credit card is a guaranteed 22% return. Do it first, do it immediately.

2. Emergency fund next. Three to six months of living expenses in a high-yield savings account. If you don't have that yet, this is your shot. HYSAs are still paying 4%+ right now. Your money earns something while it waits.

3. Retirement contribution. 2026 IRA contribution limits are $7,000 ($8,000 if you're 50 or older). Tax deadline is April 15. If you haven't maxed your IRA for this year, you can still do it. Every dollar you put in now compounds for decades. This is the highest-leverage move available to most people.

4. After all that? Yes, spend some of it. Take the trip. Buy the thing. You're allowed to be human. I just want steps 1–3 done first.

Why Refunds Are Bigger This Year

The jump is partly driven by changes from recent tax legislation, which removed federal taxes on tips and overtime income and expanded standard deductions. Many Americans also had more withheld than necessary during the year, resulting in larger refunds when they filed. The IRS expects the average to remain in the $3,700–$3,900 range as the April 15 deadline approaches.

My Two Cents?

The best thing you can do with a windfall — any windfall — is make a decision before the money hits your account. Because once it's there, inertia takes over and it disappears into daily spending without a trace. Decide right now: which step in the order of operations are you on? Put the refund there. Done.