One key tax move to consider today
Plus, five smart ways to spend this year's refund, if you get one
Hi there, my friend.
As of February 13, the average tax return is up 14% compared to roughly the same period last year. IRS filing data shows that the average refund so far in 2026 is $2,476, up from $2,169 last year.
Great news, right?
Maybe.
What do you mean, ‘maybe’? How is getting more than $300 more back this year not an amazing thing?
I understand that response, but it is important to remember this about tax refunds: That was always your money. A tax refund just means that you lent that money, interest-free, to the government for a while. A bigger tax refund means that you let the government hold even more of your money than you did a year ago. That’s money that could have been working for you already.
I do get the psychology behind wanting a refund, however. Motivation matters. If you feel you’re more likely to put that money to good use when it comes once a year as a refund than when it comes in small doses every paycheck, that’s fine. There may be some opportunity cost there, but knowing yourself, what you’re comfortable with and what keeps you moving forward is one of the keys to successfully managing your money. You do you.
Still, if you’re looking to get the biggest bang for your buck, keeping that refund near $0 is the move.
Note: This information is for general educational and informational purposes only. It does not constitute legal or tax advice. For assistance with your own specific tax situation, consider consulting a tax professional.
How do I work toward a smaller refund next year? And then what?
Simple. You can decrease your likelihood of getting a refund by reducing how much money is regularly withheld from your paycheck for taxes.
After all, a tax refund is just the government returning money that you overpaid. Reducing your withholdings can help fix that.
When you withhold less for taxes, it means a few extra dollars in each paycheck that can help you, slowly but surely, work toward financial goals such as building an emergency fund, paying down high-interest debt or saving for retirement. Or maybe it just helps make it a little easier to make ends meet. (A 2025 LendingTree survey found that 42% of tax filers rely on getting a refund.) Put those extra funds in a high-yield savings account, and they’ll grow even more quickly.
It can be confusing, for sure. It may take a few tries to get that tax refund down to around $0. (It’s even possible that you might overcorrect and end up owing the government a bit one year.) However, if you can work at it, you can reduce that refund and keep more of your money.
Here’s what I wrote in a previous post about tax refunds…
For many, all that will be required is contacting your employer’s HR department and adjusting the withholdings on your W4 form. (You can use this withholding estimator from the IRS to get a better feel for what to do.) For others, it may make sense to contact a tax professional to make sure you’re taking all of the deductions you should take and to ask any questions you might have.
The ideal goal? Getting your refund down to $0. You don’t want to overpay, give the government an interest-free loan and then get a big check, but you also don’t want to underpay and end up writing the government a big check either. However, the truth is that getting to $0 isn’t easy. The more realistic goal is to bring that refund number down as much as you can to keep more money in your pocket, but not so much that you end up owing.
Once you’ve adjusted the withholdings, you can plan how to use those extra funds. That will, of course, depend on just how much more money you’ll be getting in each paycheck and what your biggest financial priorities are, but figuring out what to do with extra cash from every paycheck is a pretty good problem to have.
At a minimum, consider opening a high-yield savings account and having the extra funds from each paycheck automatically deposited into that account. It may not seem like much, but done consistently throughout the year, those savings can add up.
What should I do with this year’s refund?
Well, as I laid out in that tax post a year ago, it depends...
As with most anything related to money, there’s no one-size-fits-all right answer about what to do in this case. It depends on how much and what types of debt you have, how much you have in your emergency savings, how secure you feel in your job, what your main financial goals for the short, medium and long-term are as well as countless other factors.
That said, here’s what I’d suggest for most people…
Most of the refund goes to paying down high-interest debt
The next biggest chunk goes to building an emergency fund
If possible, another portion can go to your biggest long-term financial goal
And a small part of it goes to treating yourself.
That last part may be surprising, but I feel strongly about it. Sometimes you just have to give yourself a break and do something nice for yourself, even if that money could be better used for other purposes. For some people, that might look like a family dinner at Olive Garden, while for others, it might be a vacation or some other splurge. As long as the treat isn’t done too extravagantly or too often, there’s nothing wrong with it. After all, when your life is consumed with paying down debt, even just a moment away can help boost your energy to continue the battle.
My views haven’t changed here. It’s totally OK to treat yourself just a little. Just make sure you’ve handled your business first by putting a substantial amount toward your credit card debt, emergency fund and another financial goal.
And yes, you absolutely should still be saving while you pay down your high-interest debt. A substantial emergency fund is one of the keys to breaking the cycle of debt. Too often, when someone pays off their card debt, the next unexpected expense just goes right back on the card. Having savings means that you don’t have to do that, and even a small amount of savings can make a big difference.
If I were to add a fifth bullet to the above list, it would be this: Giving some of your windfall to a charity that you’re passionate about. If you give, check with your employer to see if they match employee charitable contributions. It is more common than you might think. I wrote about my experience with these services here…
Billions — yes, billions with a b — of matching funds go unclaimed every year, and that’s an absolute tragedy, given how starved for funding most charities are and how much need is out there.
What do you think?
Coming soon…
Had a fascinating call today with a very, very smart person about an enormously important topic: medical billing. I spoke with this person for my book a couple of years back, but I approached her again a few days ago with a few questions around some of my own recent medical bills. I’m going to write up what we spoke about and share what you can learn from it in the next few weeks.
Until next time!
Matt