What Should I Do With My Tax Refund?
- Brian Page
- Apr 6
- 5 min read
Updated: Apr 9
Original Post: 11/28/23; Updated on 4/6/26
For many households, a tax refund is one of the largest single deposits they will see all year. And yet, when it arrives, the question often feels surprisingly unclear: What should we actually do with this money? Is it a chance to finally get ahead, or an opportunity to enjoy something you have been putting off?
The answer is more important than it might seem. Research shows that about two-thirds of taxpayers say their refund plays a meaningful role in their financial lives, with many relying on it to cover essential expenses, pay down debt, or build savings rather than treating it like “extra” money. In other words, this is not just a bonus; it is a decision point.
One helpful way to think about this decision is through Maslow’s Hierarchy of Needs. Before allocating your refund toward wants or even long-term goals, it is worth asking whether your foundational needs are fully supported. Are your essentials covered? Do you have a cushion for emergencies? Are you reducing financial stress that affects your sense of security at home?
When couples use their refund to stabilize the base of the pyramid first, they create the conditions for everything else, including enjoyment, generosity, and long-term wealth building, to actually stick.
7 Common Tax Refund Q&A's
What are people doing with their tax refunds?
According to a LendingTree survey of U.S. taxpayers, tax refunds play a critical role in household finances, with many Americans relying on them as a financial cushion rather than treating them as “extra” money. As you can see below, a significant share of respondents plan to use their refunds to save, pay down debt, or cover essential expenses like rent and groceries, reflecting the ongoing impact of inflation and rising costs.
About two-thirds of filers say their refund is important to their financial situation, and a growing number depend on it to stay afloat. While some taxpayers still allocate a portion toward discretionary spending, the overall trend shows a shift toward using refunds to improve financial stability rather than splurging.
When can I expect my tax refund?
Timing matters, especially if couples are counting on the money. According to the IRS:
Most refunds arrive within 21 days if you file electronically and choose direct deposit
Paper returns can take 4 to 6+ weeks
Delays are common if there are errors, identity checks, or certain tax credits involved
The fastest path is simple: File electronically. Choose direct deposit.
And most Americans are doing exactly that. In fact, over 98% of tax returns are now filed electronically, and nearly all refunds are issued via direct deposit.
Use the IRS tool Where's My Refund? The IRS updates the information once a day, overnight.
What you need to use the IRS tool Where's My Refund:
Your Social Security or taxpayer ID number
Your filing status
The exact refund amount on your return
What is the psychology behind spending or saving tax refunds?
The psychology behind saving your tax refund can make it challenging. Many of us wrestle with the feeling of "present bias," which is the tendency to prioritize immediate gratification over long-term goals. Since a tax refund represents a lump sum of money, spending it on immediate wants and desires can be tempting rather than saving it for future needs.
This tendency can be exacerbated by the fact that many people view their tax refund as a windfall or bonus rather than money they have earned through their hard work.
Some of us tend to mentally compartmentalize money and assign different values or purposes to different funds, called mental accounting. For example, a person may view their tax refund as "fun money" separate from their regular income and savings, which can make it more difficult to resist the temptation to spend the refund on discretionary purchases rather than saving it for more practical or long-term goals, such as building an emergency fund or paying off debt.
How should I spend my tax refund?
Spending your tax refund can be tempting, and it is not uncommon for folks to use it to treat themselves to a vacation or other experiences. Assuming this is a financial goal you were saving for that you can now afford, this could make you happier.
As we have shared, experiences often make us happier than purchasing possessions. Despite this, some people use tax refunds to indulge in a luxury they might not otherwise be able to afford.
How can I work with my spouse to save?
You can avoid turning windfall dollars into wasted dollars by first speaking with your spouse and start with what goals do you have in place where the money can be applied. Set up systems to save that make spending inconvenient and saving automatic and easier.
Schedule autosaves or auto transfers to savings for windfalls such as extra paychecks or tax refunds.
Make good habits apparent and easy.
Sign up for "round up" services with your financial institution if free. If not offered, consider these services from third parties.
Set up a direct deposit to save a portion of your paycheck automatically.
Read our previous post, 5 Tips for How to Save Money: For Couples for more ideas.
Open a secure account with the highest savings interest rates in the nation.
How does marriage affects our taxes?
Should we file our tax returns as married filing jointly or married filing separately?
How can we get a marriage tax break instead of a marriage tax penalty?
What should I do if we owe additional taxes after filing and don't have enough money to pay?
How can I reduce our chances of owing additional taxes after filing?
Where can we save our tax refunds?
Set up at least one savings account at a different financial institution than where you primarily bank. Compare (and avoid) fees and find the highest APY at a financial institution that works best for you and your spouse.
Choose the right savings product. If you do not need easy and fast access to your savings, consider certificates of deposits or iBonds.
13 Common Tax Season Q&A's
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