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Key Points:
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75% of U.S. adults expecting a tax refund in 2023 considered it to be important to their overall financial situation.
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34% of Americans expecting a refund were worried that it wouldn’t make as big of an impact due to rising costs.
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Popular uses of tax refunds last year included paying off debt, saving money, covering everyday expenses, and home improvements.
Tax season brings a substantial refund for some taxpayers. Although refunds might be around the corner for many, some worry that their refunds won’t stretch as far this year.
A 2023 survey of American taxpayers expecting a refund found that 69% were concerned about the size of their refund. And 75% considered the refund important to their overall financial situation.
Let’s explore how Americans used their tax refunds last year. Plus, smart ways to consider using your own tax refund in 2024.
How Americans Used Their Tax Refund Last Year
A survey conducted by Bankrate during last year’s tax season found that almost half of Americans were expecting to get a refund from the federal government. Of taxpayers expecting a refund, many planned to use the money to accomplish financial goals. But those spending plans varied widely.
Below is a closer look at how Americans expecting a tax refund planned to use it last year:
- 28% planned to pay down debt
- 26% planned to put it into savings
- 13% planned to pay for day-to-day expenses
- 8% planned to make home improvements
- 7% planned to spend it on a vacation
- 5% planned to invest it
- 3% planned to splurge on a retail purchase
When compared to plans from the previous year, more taxpayers were focused on debt repayment and fewer taxpayers were focused on tucking the money into savings.
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Savvy Ways to Use Your 2024 Tax Refund
If you are expecting a tax refund in 2024, the money could represent an opportunity to make progress toward your financial goals. It’s a good idea to make a plan on what to do with the funds to make sure you allocate the funds appropriately when they hit your bank account.
Below are some savvy ways to put your tax refund to good use in 2024:
- Pay down debt: If you have debt, especially high-interest debt, putting your tax refund toward it might be a good idea. Since high-interest debt can be a drain on your financial situation, putting any extra money that comes your way toward paying it off can catapult your finances forward.
- Build an emergency fund: Emergency savings offer a measure of financial protection against the unexpected expenses that life tends to throw our way. Many experts recommend saving between three to six months’ worth of expenses in an emergency fund to protect yourself. If your emergency fund isn’t fully stocked, consider topping it off or start building it with your tax refund. Open a high-yield savings account to make the most of your savings.
- Make a necessary purchase you’ve been putting off: Many of us push necessary purchases off to conserve resources. But if you really need something, then your tax refund could offer a way to make the purchase without taking on debt. For example, let’s say you need to replace your dryer or buy a warmer jacket. Your tax refund could cover that cost.
- Invest: Investing your money offers a way to put your funds to work for you. If you already have emergency savings, then investing your funds to grow for the future is a smart move.
- Treat yourself: A life of deprivation isn’t the goal. If you have a solid financial standing, consider treating yourself to a purchase you’ve been eyeing for a while. For example, you might finally get the new golf club or purse you’ve wanted. If you can make the purchase without derailing your financial situation, then there’s no harm in treating yourself.
The Bottom Line
If you are one of the many taxpayers expecting a refund this season, it’s helpful to map out how you plan to use the funds. Without a plan, it’s easy to accidentally splurge it all quickly. Some savvy uses for this influx of cash include paying off high-interest debt, building an emergency fund, and investing.
If you opt to build your emergency savings, consider doing this within a high-yield savings account to make the most of your funds.
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Sarah Sharkey is a personal finance writer with a Master's in Management from the Hough School of Business at the University of Florida. She enjoys helping people make better financial decisions and has written for numerous personal finance publications, including Money Under 30, Business Insider, and The College Investor. Sarah enjoys traveling, hiking, and reading when she is not writing.
