Taxpayers can expect bigger-than-usual refunds when they file their 2025 tax returns this year, largely because of provisions in the One Big Beautiful Bill Act (OBBBA).
Here’s a look at the the seven major tax cuts that took effect in 2025 under the OBBBA and that could boost your tax refund this year, according to the Tax Foundation:
- Maximum child tax credit increase of $200.
- Standard deduction increase of $750 for single filers and $1,500 for joint filers.
- State and local tax (SALT) deduction cap increase to $40,000 for taxpayers earning less than $500,000 a year.
- New $6,000 additional deduction for seniors that starts phasing out when taxpayers make more than $75,000 (or $150,000 for joint filers).
- New $10,000 auto loan interest deduction that starts phasing out when taxpayers make more than $100,000 a year (or $200,000 for joint filers).
- New deduction for up to $25,000 in tip income that starts phasing out when taxpayers earn more than $150,000 ($300,000 joint).
- New deduction for up to $12,500 in overtime income ($25,000 for joint filers) that starts phasing out when taxpayers earn more than $150,000 ($300,000 joint)
If you get a tax refund this year, here are four of the best things you can do with it.
Pay Down Debt
Nearly all financial experts say that paying off debt is the best use of your tax refund — especially credit card debt. Your refund can make a serious dent in your debt load, which in turn can provide a major lift to your overall finances.
The average credit card balance in the U.S. was $5,595 per cardholder as of the 2025 second quarter, according to data cited by Academy Bank. Meanwhile, IRS research found that the average federal tax refund last year was $3,116 — meaning that the average refund last year could pay off more than half of the average credit card debt.
With a bigger refund this year, you’ll be able to make an even bigger dent in your debt load. Citizens Bank recommends starting with credit cards that have the highest interest rate and then moving on to cards with the next highest rates.
If you don’t have a lot of credit card debt, then use the refund to pay down other debt, such as student or car loans.
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Build Up Your Emergency Fund
If you haven’t set up an emergency fund — or allowed it to fall below the recommended balance — tax refunds are ideal for beefing it back up again. Ideally, you’ll have enough money in the fund to cover three to six months’ worth of essential expenses such as mortgage/rent, utilities and groceries.
To get the most bang for your buck, Experian recommends opening a high-yield savings account or money market account. With these, you’ll get much higher interest rates than with traditional savings accounts.
Boost Your Nest Egg
Another good use of a tax refund is to put part of it towards a retirement savings account such as an IRA or 401(k) account. Thanks to changes in contribution limits in 2026, you’ll be able to accelerate those savings.
According to the IRS, the annual contribution limit for employees who participate in 401(k) plan and similar plans is $24,500 in 2026, up from $23,500 in 2025. The limit on annual contributions to an IRA is $7,500 in 2026 vs. $7,000 in 2025. The IRA catch-up contribution limit for individuals ages 50 and older is $1,100 this year vs. $1,000 last year.
Contribute to Savings for Big Goals
In addition to an emergency fund, you might also want to set up a savings account for big-ticket items such as a home down payment, new car or renovation. A hefty tax refund can either help you get started or provide a nice boost to an existing account.
Just make sure they money goes toward something you really need. As Citizens Bank noted, a tax refund isn’t “free money” — you earned it through work, so don’t spend it on impulse purchases or overpriced items you might regret later.
Discover the reasons tax refunds may be larger this year and the smartest ways to put that extra cash to work.
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This article originally appeared on GOBankingRates.com: You Could Get a Bigger Tax Refund This Year — Here’s Why and What To Do With It
