Like most people, after filing taxes, you’re definitely looking forward to getting your tax refund. Plus in 2026, recent changes, such as a higher standard deduction and child tax credit, are expected to increase the average federal refund for 2025 taxes by as much as $1,000.
So what should you do with any potential extra money you receive? Unless you need to use it for immediate expenses like rent or bills, consider a plan to spend your refund wisely. Here are six clever strategies to help you maximize your tax refund.
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1. Pay off or pay down debt
Living with debt is stressful, whether you have high-interest credit cards, student loans, car loans, buy-now-pay-later services, or unpaid medical bills. The average consumer debt balance is $104,755. So while your tax refund may not get your balances to zero (or close to it), paying down debt is a wise way to spend it.
Gain momentum by choosing one of two debt payoff strategies. The “avalanche method” focuses on debt with the highest interest rate in order to save you money on interest charges down the road.
Or, if you have multiple credit cards with similar interest rates, you can use your tax refund to pay down your smallest balances first–called the “snowball method.” Then, with fewer card balances to pay, you can leverage your tax refund and potentially raise your credit score.
2. Build your emergency fund
Another great way to use your tax refund is to build an emergency fund. An emergency fund is an essential financial resource meant to help you (and your family) during job loss, salary change, or unexpected expenses like emergency medical bills or natural disasters.
Ideally, an emergency fund should be able to meet between 3-6 months’ worth of expenses. This includes your rent or mortgage, utilities, groceries, transportation, and other essentials.
Your tax refund can help you start (or grow) your emergency fund. If you recently started saving, look for a high-yield savings account–preferably one that accrues interest at a higher rate and can be accessed quickly.
3. Invest in yourself
While investing in yourself isn’t always easy, it can certainly result in direct personal gain. Some ideas for investing in yourself with your tax refund include:
- Continuing your education: If you’ve been thinking about a career change, use your tax refund to facilitate the switch. You can enroll in a certification course or technical training, start a college fund for yourself or apply to graduate school. Whichever you choose, there may even be future tax benefits available through the Lifetime Learning Credit if you take a course at an eligible education institute. The credit is worth up to $2,000 per tax return, and there isn’t a time limit on when you can claim it–though there are income limits to qualify.
- Starting a side hustle: Use this year’s tax refund to make your dreams a reality. Launch an Etsy store or turn your refund into the capital you need to get your small business off the ground.
4. Build your retirement account
No matter the stage in your career, keeping your retirement in focus is important. Your tax refund can go a long way toward that goal. You may qualify to use your refund to contribute to another retirement plan, such as your IRA or Roth IRA, even if you have a 401(k) through your employer.
5. Contribute to other savings goals
You probably have savings goals beyond an emergency fund or retirement. They may be short-term, like a vacation, or longer term, like a down payment on a house. Putting extra cash from your tax refund can boost those balances to get you even closer to achieving those goals.
6. Invest in home repair or maintenance projects
Ben Franklin famously said, “An ounce of prevention is worth a pound of cure,” and many homeowners can relate. Staying on top of home repairs is a priority for 71% of homeowners, according to a recent Angi report, with the intention of avoiding more expensive repairs in the future. Using tax refund money can help offset those costs so you can enjoy your home instead of worrying about it.
7. Donate your refund to charity
If you want to up your charitable giving this year, consider putting some of your tax refund aside to support one or more charities of your choice. Not only will donating your refund can help your community, but most charitable donations are also tax deductible. In fact, recent tax law changes allow you to deduct up to $1,000 of donations if you take the standard deduction instead of itemizing.
8. Treat yourself
Consider using your tax refund to give yourself a break. Take a no-tech weekend, plan a getaway with loved ones, or book a spa staycation. Whatever it takes to rest, recharge and reset, do more of that.
Making your tax refund count
These suggestions may not seem as thrilling as using your refund for a fancy vacation. But they can have a longer lasting impact than simply depositing money into your checking account to cover everyday expenses.
When done thoughtfully, investing wisely could provide you with peace of mind and financial stability, leading to benefits for years to come.
Prosper does not provide tax advice. You should consult your own financial advisor.
Written by Lauren Ward
Lauren Ward is a personal finance writer who is passionate about helping people simplify their financial decisions. Her work has been featured in outlets such as USA Today Blueprint, CNN Underscored, and many more. She lives in Virginia with her husband and three children.