What Should You Do With Your Tax Refund in 2026? Smart Moves for Every Dollar

by Jackie Navarrete

Free Money? Not Quite… But Still a Big Deal. So what should you do with your tax refund?

Every spring, millions of Americans check their bank account and see a beautiful thing: their tax refund has arrived. Whether it’s a few hundred bucks or a few thousand, getting that refund feels like a mini lottery win. But here’s the truth:

A tax refund isn’t free money. It’s actually your own money being returned to you because you overpaid taxes throughout the year.

Still, no judgment—we love a good refund moment just as much as the next person. And the real question isn’t whether you deserve to treat yourself (spoiler: you do)… it’s how to make sure that money actually helps you in the long run.

In this guide, we’ll break down smart, realistic things you can do with your refund—no financial degree required.

How Much Are People Getting Back in 2026?

The IRS reports the average tax refund in 2025 is hovering around $3,200, but many people get much more or less depending on income, dependents, deductions, and changes in federal policies like the Child Tax Credit or EITC.

So whether you’re getting $500 or $5,000, the steps below will help you make the most of it.

1. Build or Boost Your Emergency Fund

Before you upgrade your TV or book that Cancun getaway, take a minute to breathe and look at your safety net.

• Goal: Save at least 3–6 months of living expenses.
• Why: Life throws curveballs. Job loss, car trouble, medical bills—having a cushion means you won’t go into credit card debt when life hits hard.
• How: Deposit your refund in a high-yield savings account (like Ally, Discover, or Capital One) that earns more than a standard checking account.

Even just $500 can cover a car repair or two weeks of groceries. That’s peace of mind you can’t put a price on.

2. Pay Off High-Interest Debt

If you’ve got a credit card with a 25% APR… yeah, it’s time to make that thing cry.

• Start with your highest interest balances.
• If your refund doesn’t cover the full balance, make a large lump-sum payment—it’ll knock down your principal and reduce future interest charges.

Bonus tip:

Ask your credit card company if they’ll lower your APR after a big payment. Some will!

3. Invest in Your Skills or Career

Your refund could be the ticket to your next raise or side hustle.

• Take a course: Learn coding, graphic design, bookkeeping, or even how to become a certified tax preparer (ironically helpful).
• Get certified: Many industries reward certifications like Google Ads, ServSafe, or real estate licenses.
• Buy gear: Tools, a laptop, a camera—whatever helps you level up your work.

The goal here isn’t just “spending”—it’s investing in your ability to earn more later.

4. Make Small-but-Mighty Home Upgrades

Homeowner or renter, there are small upgrades that make life better and even boost your property’s value.

• Energy-efficient appliances lower utility bills (some come with tax credits too!)
• Smart thermostats like Nest can cut energy use
• A fresh coat of paint = instant value bump and mental refresh
• Fix that leaky sink you’ve ignored for 8 months

Even if you rent, small upgrades like new lighting, shelving, or a standing desk can upgrade your everyday life without needing a renovation loan.

5. Invest in Your Kids (or Future Kids)

Tax refunds are a great way to jumpstart or bulk up your child’s future fund.

• Start or add to a 529 plan (a college savings account with tax-free growth)
• Open a savings account in their name (great teaching opportunity too!)
• Pay for enrichment like summer camp, tutoring, or sports

Even $250 invested today in a 529 plan can grow to $1,000+ by the time your child turns 18.

6. Start a Small Investment Portfolio

You don’t need thousands to start investing. Apps like Robinhood, Fidelity, Public, or Acorns let you get started with as little as $5.

• ETFs (Exchange Traded Funds) are a great beginner-friendly choice—they spread your risk and follow the market
• Index funds like the S&P 500 are historically strong long-term investments
• Set up automatic contributions from your checking to keep building your portfolio

Even if you start with $100, you’re doing more than 40% of Americans who haven’t invested at all.

7. Treat Yourself—Responsibly

OK, let’s be real: it’s okay to enjoy some of your refund. Money is a tool, not a prison sentence.

The trick? Set a percentage of your refund to spend guilt-free. We recommend the 80/20 rule:

• 80% = savings, debt, investing
• 20% = YOLO

That $3,000 refund? Go ahead and spend $600 on concert tickets, a spa day, or a weekend trip. Just don’t let the other $2,400 disappear into DoorDash.

8. Start (or Grow) Your Small Business

Thinking of turning your side hustle into a legit business? Your refund could be your launch fund.

Ideas for how to use it:

• Buy a Clover POS system to sell your products or services
• Create a website or online store
• Register your LLC
• Stock up on inventory or packaging
• Run a small ad campaign on Instagram or Google

Need help? That’s what we do at Velocity Merchant Services—we help small businesses accept payments, build websites, and get the gear they need to get started.

9. Improve Your Health or Well-being

Don’t sleep on the power of investing in your own physical and mental health.

Ideas include:

• Therapy sessions (yes, it’s worth it)
• Gym memberships or personal training
• A new mattress or standing desk
• Meditation apps or wellness retreats
• Healthy food delivery subscriptions

Your health is the foundation of everything else—treat it like it matters.

10. Get Organized for Next Year’s Taxes

File this under “boring but powerful.”

• Buy a folder or cloud service to store receipts and tax docs throughout the year
• Hire a tax pro to review this year’s return and set up better deductions
• Use a bit of your refund to start quarterly payments if you’re self-employed
• Sign up for bookkeeping software if you run a small business

Smart planning now = bigger refund (or smaller bill) next year.

Final Thoughts: It’s Your Money—Make It Work for You

There’s no one-size-fits-all answer to what you should do with your tax refund. But if there’s one takeaway from all of this, it’s this:

A tax refund isn’t an excuse to splurge—it’s a chance to build something.

Whether that’s peace of mind, a business, or just a little less debt, you get to decide what matters most.

And if you’re a small business owner—or dreaming of becoming one—Velocity Merchant Services is here to help.