according to the IRS, the average tax refund was $3,100 in 2022. Here are my top five uses for spending tax refunds:

 1. Pay off any high-interest revolving debt. The median rate of interest across credit cards is between 19% and 20%. If you are carrying a balance month to month this should be one of your highest priorities to throw any extra funds towards – it would be hard to beat that return on investment!

 2. Build up your emergency fund. Over half of Americans can’t cover unexpected bills over $1K. You should aim to build up at least 3 – 6 months’ worth of expenses in a liquid account. Some online high yield accounts are up to 0.5% to 0.7% APY at the moment. Sure that doesn’t sound so great in an 8% inflation environment, but if you don’t have liquid funds to pay for the unexpected emergency (new transmission, broken A/C, etc) you could end up having to finance the costs on the 19% APR credit cards mentioned in #1 and that is much less desirable.

 3. Make 2022 IRA contributions. The money has already come out of your paycheck and turns out you paid too much to the IRS (based on credits most likely), and it’s too late to make 2021 contributions (you already filed!). You might as well pump some juice into this year’s contributions. Depending on your AGI and marginal tax rate, Roth might be the better option.

 4. Give your kids’ 529s a boost! If you don’t have high debt left (#1) and you already have an emergency fund (#2) and max out your IRAs (#3), consider a gift to your future undergraduate! $3K at a 7% rate of return could grow close to $11K in 18 years.

 5. Save half, enjoy half, and plan for likely lower refunds next tax season. If you’re already covering the first 4 bases above, you might want to be disciplined enough to save or invest half, making spending the remainder a less guilty experience. $1,500 could go a long way towards an experience the whole family will enjoy – and we could all use more of that during these times!  You may want to revisit your current withholding and make sure you don’t find yourself owing the next time you file your 1040. The child tax credit and dependent care credits will revert to their 2020 levels absent any new legislation from congress so hopefully you made the best of them in 2021!


I hope this helps! Do you want to make your 2022 taxes more accurate to reduce a refund or prevent owing the IRS? Schedule an appointment – We Can Plan For That!