A small perk of having a tax-prep pro in the family: 23-year-old Carl Matthew Moral, who works at H&R Block, prepared his parents’ return and helped secure about $3,700 in refunds. His father, Jimmy, plans to use that money toward a car for Carl. With Tax Day approaching, many early filers are seeing bigger refunds overall: the IRS reports the average so far this season is about $3,521, roughly 11 percent higher than at this point last year, though that figure could change as more returns are processed.
Law changes in the 2025 One Big Beautiful Bill Act are the primary driver of the rise. On average the reforms have added about $350 to refunds by increasing the standard deduction, boosting the child tax credit and creating new deductions for tips and overtime. David Tinsley, senior economist at the Bank of America Institute, describes a short-term ‘sugar-rush’ boost to spending among refund recipients.
Bank of America Institute card data show that early filers are spending more on discretionary categories such as electronics, hotels, lodging and restaurants compared with a year ago. But spending patterns are mixed. Many people are using refunds to tackle financial priorities: paying down high-interest credit card balances, adding to savings, and covering essentials like groceries and rent.
A LendingTree survey found about two-thirds of filers view their tax refund as very or somewhat important to their finances, and an increasing number say they rely on that refund. LendingTree chief consumer finance analyst Matt Schulz notes that people generally are not blowing their refunds; they are mostly allocating the money to necessities and debt reduction.
Some taxpayers feel any benefit is largely offset by higher fuel costs. Recent graduate Sarah Granderson invested her $400 refund in stocks but says it did not feel like a windfall because rising gas bills have eaten into the gain. Researchers at the Stanford Institute for Economic Policy Research estimated that, under a scenario that included a three-week Strait of Hormuz disruption, households could pay roughly $740 more for gas this year — a period already exceeded in duration by recent events.
Although refunds are larger, the increase is smaller than some forecasters expected. Bank of America Institute analysts had projected a roughly 25 percent rise versus last year. Tinsley says the outcome is still positive but not as strong as hoped; timing and the still-unprocessed returns may explain part of the gap.
Practical advice from financial professionals on what to do with a refund:
– Prioritize paying off the highest-interest debt first, typically credit cards, since those rates compound quickly, suggests Mandi Woodruff, host of the Brown Ambition podcast.
– If you lack three to six months of emergency savings, consider using the refund to build that safety net, says Rich Guerrini of PNC Wealth Management.
– Think about investing some or all of the refund, either in the market or in credentialing or training that could boost future earnings; investing in yourself often delivers strong returns, Guerrini notes.
– It can also be sensible to split the refund: put a portion toward debt or savings and use a modest share for a treat or short break. As Woodruff points out, having debt does not mean you cannot allow yourself some enjoyment.
Overall, larger refunds are translating into a mix of short-term spending and longer-term financial moves, with many households balancing enjoyment, necessities and rebuilding financial stability.