The average tax refund amount increased nearly 11% from a year ago, totaling $3,623 for the week of March 13, according to data from the Internal Revenue Service.
Meanwhile, the total amount the government has refunded has increased 12% in the same period, reaching $182.6 billion, the IRS said. Visits to IRS.gov have also increased more than 54% from a year ago as the tax filing season moves into its final weeks, with nearly 70 million returns already received by the government ahead of the April 15 filing deadline.
Provisions in the One Big Beautiful Bill, including new and expanded deductions, were expected to boost Americans’ refunds this year. But higher gas prices amid the US-Israel war against Iran could hit those anticipated savings: An analysis by economists at Oxford Economics forecast last week that 2026 could bring the slowest annual consumption growth since 2013, excluding the pandemic, as consumers cut back on spending.
“We had anticipated an increase in spending due to a bumper tax return season, but the rise in gasoline prices, if sustained, would more than offset that boost,” economists Michael Pearce and Bernard Yaros wrote in the report.
Simply put, a large tax refund is a loan to the government and pays you no interest.
“While a refund feels like a bonus, it is simply the return of your own overpaid money,” David Perez, founder and CEO of Tax Maverick, said via email. “This cash could have been used monthly to cover expenses or manage debt.”
Debt is one of the reasons why higher tax refunds are so concerning. US household debt rose about 4% in 2025, according to data from the Federal Reserve Bank of New York. And serious delinquencies also increased, payments that are at least 90 days late.
Therefore, it is not just an interest-free government loan. Given the high inflation rate, rising unemployment, higher gas prices, and long-term financial goals, this is money that could have been better spent all year.
Whether you have little money or live comfortably, overpaying taxes is a missed opportunity. These are just a few ways your hard-earned money can do more for you all year long.
If you’re struggling to pay for everyday expenses (like higher gas prices), a smaller tax refund could mean more financial breathing room.
“Adjusting your tax withholding gives you more money in each paycheck,” Perez said. “This can provide immediate funds to cover living expenses, speed up debt repayment, or reduce reliance on high-interest credit cards.”
You can even use the money to build up your savings, which can cover emergencies or large purchases, so you’re not racking up credit card debt.
High-interest debt generally refers to credit with an annual percentage rate (APR) of 8% or more. However, credit card rates tend to be much higher.
The average APR for credit cards was 22.30% for the fourth quarter of 2025, according to the Federal Reserve. That means that while the money you overpay in taxes stays in the government’s hands and doesn’t earn interest, your credit card balance costs you more each month.
Instead, you could adjust your withholdings and use the money to reduce your debt balances and save on interest.
More information: 4 ways to pay your debts faster
Invest and earn interest
Perhaps the biggest opportunity cost of a big tax refund is the interest your money could have earned in the market.
The long-term average return of the stock market is 7% when inflation is taken into account. While it’s not guaranteed, and in any given year you may experience a profit or a loss, investment returns present much greater potential than leaving your money in the hands of the government.
“Use the increased monthly cash flow to systematically invest in retirement accounts, brokerage accounts or high-yield savings,” Perez said. “This strategy allows money to start working for you immediately, maximizing potential growth over time.”
Read more: The 10 Best High-Yield Savings Accounts Right Now
If you typically receive a large refund, it usually means too much tax is withheld from your paycheck throughout the year. Adjusting your Form W-4 can help you keep more of your paycheck in your pocket instead of waiting for a refund.
Here’s how to adjust each step on your W-4 so you can reduce your refund:
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Adjust Step 3 (dependents): Increasing the number of dependents reduces the amount of taxes that are withheld. This is one of the easiest ways to increase your take-home pay if you qualify.
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Use Step 4(b) for deductions: If you expect to claim deductions beyond the standard deduction (such as mortgage interest or charitable contributions), adding them here tells your employer to withhold less taxes, resulting in a larger paycheck and a smaller refund.
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Avoid or reduce income in Step 4(a): Adding additional income (such as freelancing) increases retention. If your goal is a smaller refund, generally No You want to add income here unless you need to offset tax-free earnings.
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Reduce or eliminate backup withholding in Step 4(c): This is where you can request any additional withholding amounts from your paycheck. If you had previously entered a number in this step, reducing or eliminating it will increase your take-home pay.
Note: If you leave Step 4 blank, your employer calculates withholding based on your filing status and the standard deduction. If that results in a large refund, it may mean that your withholding is still larger than necessary for your situation.
When adjusting your retentions, be careful not to overcorrect.
“Reducing withholding too aggressively can result in a significant tax bill and potential underpayment penalties upon filing,” Perez said. “The ideal goal when filing taxes is to be close to a break-even point (either a small balance due or a small refund) to ensure cash flow is maximized throughout the year.”
To find the right balance, use the IRS Withholding Estimator or work with a certified tax professional. And be sure to update your W-4 after major life events, such as getting married or divorced, buying a home, having a child, or starting a business.