As gas prices rise, Americans who file their taxes are getting some relief.
The average federal tax return was nearly $3,800, an 8.8% increase from the same week last year, according to data from the Internal Revenue Service. The government has processed more than 36 million returns so far this season, totaling $136 billion.
Refunds were expected to be higher this year due to provisions in a major stimulus bill, which provides new tax breaks to millions of Americans. The big changes include new deductions for overtime pay and tips, a broader deduction for state and local taxes, and a larger standard deduction — $31,500 for married couples.
The vast majority of Americans claim the standard deduction rather than itemized deductions. But it’s worth reconsidering whether you’re getting the most out of stuffing, especially if you’re a homeowner.
Those who bought in recent years typically have higher mortgage rates — they averaged about 6.69% over the past two years, according to Freddie Mac data. And you pay more in interest in the early years of the mortgage. All that can make the mortgage interest deduction more valuable. If you live in a high-tax state, combine this with the jumbo-sized SALT deduction, and these benefits combined can easily add up to more than the standard deduction.
A few weeks into filing season, the IRS has received only 32 million returns and issued nearly 13 million returns, slightly behind last year’s pace on both fronts. Processing by the federal tax agency is also delayed until 2025.
The IRS issues most refunds within 21 calendar days of receiving your refund – if you mail it. However, if you are filing a paper tax return, the entire process can take a week (or more). Once you’ve filed, you can check the status of your refund and see if it’s been deposited into your bank account using the IRS’s Where’s My Refund tool.
The IRS expects to process about 164 million individual tax returns for tax year 2025 by April 15.
Meant to put away some savings, but continue to be devastated by unexpected bills? A tax refund is the perfect seed money for an emergency savings fund.
Emergency savings, sometimes called rainy day funds, can help your family during a job loss, which often involves not only a loss of income but also health care. Or it can provide money for unexpected expenses, such as car or home repairs.
How much should you put away in an emergency fund? Any cash is better than nothing, but experts encourage putting aside savings equal to three to six months’ worth of expenses.
Read more: What is an emergency savings fund?
Dumping a large portion of your paycheck into a savings account to keep it safe from impulse purchases isn’t a bad idea. But it’s important to remember that not all savings accounts are created equal when it comes to interest rates.
You’ll get more bang for your buck by investing in high-yield savings accounts, money market accounts, or high-yield CDs (certificates of deposit). While these high APYs are a big advantage, there are some drawbacks, such as limited access to your funds and set minimum deposits. Understanding how these accounts work is very important.
And be sure to choose a bank that is FDIC insured. The Federal Deposit Insurance Corporation (FDIC) is a government agency that insures your bank deposits up to $250,000 in the event of a bank failure.
Read more: High Yield Savings Account vs. CD: Which is Right for You?
One of the most effective ways to use your paycheck is to pay off debt. Eliminating your credit card debt, paying off medical bills, and tackling other debt with interest in the double-digit territory is a solid investment in your financial future.
If you don’t have high-interest debt, you can make extra payments on student loans, car loans, or even home loans that you couldn’t otherwise afford.
Read more: The best ways to pay off credit card debt
Thanks to the magic of compound interest, putting your refund check into a retirement account is an investment strategy that pays serious dividends. Adding $3,138 (the average return in 2024) to a regular IRA can change your paycheck to $25,000 after 25 years.
However, before you decide to use all your extra money to pad your retirement savings, double-check the contribution limits for traditional IRAs, Roth IRAs, and 401(k). If you have already contributed the maximum, you may want to add funds to your Health Savings Account (HSA) instead.
Worried about protecting your retirement plan gains as you approach 65? Experts recommend moving 5-10 years of living expenses into high-yield savings accounts accessible when you reach retirement age and shifting some of your asset allocation to the relative safety of high-quality bonds. Reducing risk in your retirement portfolio can protect your immediate retirement income from potential volatility in the stock market.
Read more: These are the new traditional IRA and Roth IRA limits in 2026
Take the time to carefully consider your personal financial goals and put your returns to work. Some possibilities include:
