The filers recovered a large sum of money from the IRS.
- The average tax refund this year is $658 higher than the average refund last year.
- If you receive a lot of money from the IRS, it’s important to develop a strategy on how to use that money.
At this point, we still have more than a month to go before the tax filing deadline of April 18, 2022. But many people have already submitted their taxes, and the IRS has already issued nearly $30 million in refunds. of taxes.
The good news? So far, refunds are higher this year than in 2021.
The average tax refund this year is $3,473 as of February 25. That’s an increase of $658 from last year, when the average tax refund was $2,815.
Interestingly, many filers have been warned to expect lower refunds in 2022. The reason? Tax credits are often an important source of tax refunds. But many families who were eligible for Child Tax Credit payments received half of their money in 2021.
That said, the Child Tax Credit has also received a major boost for 2021. Its maximum value has increased from $2,000 to $3,000 for children aged 6 to 17 and to $3,600 for children under 6 years old. Despite having received half the credit in advance, many families are still in line for a big refund this year.
If you’re getting a big tax refund this season, it’s important to put that money to good use. Here are some options to consider.
1. Increase your emergency fund
You never know when a sudden need for cash may arise. That’s why it’s important to have enough money in your savings account to cover three to six months of essential bills. If you haven’t reached that savings threshold yet, consider putting your tax refund into your emergency fund.
2. Pay off high-interest debt
The longer you carry high-interest debt, the more it is likely to cost you. It pays to use your tax refund to reduce a credit card balance. It could also help improve your credit score.
3. Start saving for retirement
Once you retire, Social Security usually won’t pay you enough money to maintain the lifestyle you’re used to. That’s why you need to save for your retirement throughout your career. If you haven’t gotten the ball rolling yet, your tax refund could serve as good seed capital for your IRA.
4. Invest in your career
The job market is full of opportunities these days. If taking a course to hone certain skills can lead to a better job, then it’s worth spending the money on one. Your tax refund could end up covering that bill and more.
5. Give yourself more leeway for living expenses
Many people are struggling with daily bills due to rampant inflation. If you need your tax refund to cover basic expenses, this is a great way to use it, even if it means you can’t apply that money to a longer-term financial goal.
As the 2022 tax season progresses, the average refund amount may change. It will be interesting to see if the final number is higher or lower than the average repayment in 2021. But in any case, if you have a lot of money coming, be careful how you use it – all the more that you don’t know if this year’s refund will be your last or your biggest for a while.