U.S. taxpayers are getting a nice tax break in 2026, with
the Internal Revenue Service noting that the average IRS refund is 10.9 percent higher than a year ago.
Many taxpayers will be getting a hefty sum from the IRS. Through Feb. 6, the average taxpayer rebate was $2,290. That’s up from $2,065 from February 2025.
The main driver for the funds is the One Big Beautiful Bill Act (OBBBA).
Signed in July 2025, the bill introduced tax cuts for the 2025 tax year, including an increased standard deduction of $31,500 for married filing jointly, new deductions for tips, overtime pay, auto loan interest, and seniors, plus a boosted child tax credit. “Because the IRS did not update withholding tables mid-year, many taxpayers had more tax withheld from paychecks than required under the new rules, leading to larger refunds when filing in 2026,” Andrew Latham, a certified financial planner and content director at SuperMoney.com, told NTD News.
With taxpayers adding more cash from their 2025 returns, the opportunity to make a few savvy personal finance moves is in play. These action steps, put to good use by taxpayers with ample refund cash, can help solve multiple household financial headaches.
1. Pay Off High Debt
While the smartest tax rebate-linked moves depend on where you stand financially, some steps are better than others.“First, if you have any high-interest debt, especially credit cards sitting at 22 percent or more, throw your refund at that before anything else,” Latham said. The math is brutal, Latham noted. “A $3,000 balance at 24 percent APR costs you roughly $720 a year in interest alone. Paying that off is like earning a guaranteed 24 percent return, and no investment on earth can promise you that,” he said.
2. Start Stacking Cash With a Household Fund
If your debt situation is under control, fund your emergency savings.“Most people don't have three months of expenses set aside, and one car repair or medical bill away from putting it right back on a credit card,” Latham added. “Even parking $2,000 in a high-yield savings account earning 4.5 percent gives you a real cushion and about $90 a year in interest.”
3. Build, or Add to, a Roth IRA
If you haven’t maximized Roth IRA contributions for 2025 yet, use your refund to make a Roth IRA contribution to help boost your retirement savings“Max out your IRA or HSA contribution if you haven't already,” Josh Katz, CPA and founder at Ohio-based Josh Katz CPA, told NTD. “That refund can go right into tax-advantaged accounts that'll compound for decades. With taxes, the boring moves are the smart moves."
4. Think About Adding to 2026 Tax Payments
Apply your refund to your 2026 taxes and give your withholdings a jump start.“This could be advantageous if you anticipate your income increasing in 2026 and potentially being in a position where you will owe taxes,” Matt Hyland, an investment advisor at Arnold and Mote Wealth Management, told NTD. As interest rates have risen, the IRS penalty for underpayment has increased significantly. “Putting your refund towards your 2026 tax bill could help prevent the interest the IRS adds to underpayments, which is currently 7 percent,” Hyland added.
Don’t Squander a Golden Opportunity to Put Cash To Work For You
One of the biggest mistakes people make is treating tax refunds as "found money."“Behavioral finance adherents refer to this bias as mental accounting,” Robert Johnson, professor of finance, Heider College of Business at Creighton University.
That theory states that people treat money differently based on its source, intended use, or location, rather than viewing it as fungible or interchangeable. “This cognitive bias leads to irrational decisions, such as spending windfalls like tax refunds easily while hoarding paycheck savings, or taking high risks with 'house money,” Johnson said. “Money is money, period. The source should not matter.”
The views and opinions expressed are those of the interviewees. They are intended for general informational purposes only and should not be construed as a recommendation or solicitation. NTD does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. NTD holds no liability for the accuracy or timeliness of the information provided.
