Receiving a large tax refund can feel like you won the lottery. For many of us, it's the biggest paycheck we receive all year. That's a lot of extra money at our disposal.
The average tax refund in 2025 was $2,939, just $70 higher than the average tax refund of $2,869 in the prior year,1 according to IRS data.
Keep in mind, however, that the money you got back was yours all along. You just gave the government a yearlong loan with no interest. While you shouldn't necessarily aim to get a large tax refund every year, here are some ideas on how to use your windfall.
1. Pay off credit card debt
Life is expensive and a lot of what we buy goes on a credit card. With the average credit card interest rate of nearly 26%,2 keeping a balance on a card could cost you a lot.
If you have credit card debt, use your tax refund to pay that off first. If you have more than one credit card or other bills with high-interest rates, consider paying off the bill with the highest interest rate first and the required minimum on the others.
Or you might want to use the "snowball method," a strategy that focuses on paying off debt by tackling the lowest balances first. You make minimum payments on your debts, then any extra payments go toward your lowest balance. Once that is paid, you move to the next lowest debt.3
2. Add to your emergency fund
Life happens. And so do unexpected emergencies. Having funds available for emergencies is important to our overall financial well-being. Your goal should be to have enough cash to cover three to six months of expenses.
Don't feel overwhelmed by this amount. Even if your emergency savings are close to zero, any amount you start with will help. Also, your tax refund could amount to a week's — or even a month's — worth of expenses. That's a great foundation to build upon.
3. Add to or jump start your retirement savings
Retirement might seem like a long way off, but the years go by fast. Are you saving enough money for when retirement comes?
A traditional or Roth IRA can help supplement your retirement savings. In 2026, if you're under the age of 50, you may contribute up to $7,000, and $8,000 for those over 50.4
4. Fund college savings
The price of higher education is expensive. Setting up a college funding account with your tax refund can help ease future financial burdens.
According to the Education Data Initiative, the average annual tuition at public schools in 2025 was $38,720 per student, including books, supplies and living expenses. The average private, nonprofit university student spends $58,628 per academic year living on campus.5
Those are big numbers. To help offset the price, consider investing in a tax-advantaged vehicle, such as a 529 plan, well before your child heads to college. Tax benefits include tax-free earnings and withdrawals for qualified educational expenses. While originally created to cover post-secondary education, the plan now allows 529s to cover costs of K-12 education and apprenticeship programs.6
Work with a financial professional to determine if a 529 or other investment vehicle is right for your situation. 529 plans aren't the only option out there.
5. Add to your HSA
Some health insurance features a high-deductible plan that offers a heath savings account (HSA). You can make a lump sum contribution to your HSA at any time during the year, up to the annual contribution limit set by the IRS. The contribution limits for 2025 are $4,300 for self-coverage and $8,550 for family coverage and the HSA contribution limits for 2026 are $4,400 for self-only coverage and $8,750 for family coverage.7
6. Start a business
If you have or are developing a hobby, such as woodworking, painting or baking, and want to turn your hobby into a side business, your tax return could serve as seed money to build up inventory or develop a website.
7. Invest in your home
Your tax refund isn't going to get you a new kitchen or bathroom. But it can open the door to smaller remodeling projects that are on your home improvement to-do list.
And some improvements will save you money down the road, allowing your tax refund to make an even greater impact. For example, you might want to replace your old appliances with energy-efficient models. Or perhaps you're ready to replace that drafty entry door.
8. Invest in your family
When we have our basic needs covered, it’s time to do something fun. In fact, research shows that experiential purchases contribute more to overall happiness than material purchases. “Experiences represent a more promising route to enduring consumer happiness than the consumption of material goods.”8
Use your tax money for family fun around town or to start a vacation fund. Whatever experience you choose, you can revisit it repeatedly by talking about it with friends and family.
9. Help others
Giving is good! Consider donating to an organization in your community or another organization that serves a cause you believe in. Not only does it help others, donating to a charitable organization is a mood booster. Studies show giving greatly improves mental health and happiness. When we give, our brain releases positive emotions and empathy.9
