March 1, 2025
Plan Now for How to Use Your Tax Refund
By Barb Wollan
Iowa State University Extension and Outreach
Health and Human Sciences Specialist
Iowans who are expecting a sizable income tax refund have choices about how to use that money, says Barb Wollan, a human sciences specialist with Iowa State University Extension and Outreach.
“Keep in mind that how you use your refund will affect your household’s financial wellbeing all year long. However, before you receive your refund, consider how much money to pay for tax preparation,” said Wollan, who specializes in family wellbeing.
Wollan offers these suggestions.
Maximize your refund by not overpaying for tax return preparation
If your income is below about $67,000 per year, you may be eligible for free tax preparation through the Volunteer Income Tax Assistance program. Some ISU Extension and Outreach county offices are also VITA sites and a list of these VITA sites is available online. If your income is below $84,000, you can use VITA’s free do-it-yourself software. Learn more by sending an email to Central Iowa VITA, centraliowavita@gmail.com; an auto reply will provide you with the link and instructions.
Plan for use of your refund
As with any type of income, you have three main choices for how to use your tax refund: spend, save or pay off debt.
“Careful thought can help you ensure that your family benefits all year long from the refund,” Wollan said.
Save your refund
Saving substantially from the tax refund may be overlooked when immediate needs and wants are always present. However, for many families, saving a large portion of the refund may be the best possible option.
“There are good reasons to save your income tax refund,” Wollan explained.
Hands counting money, close up
Think back to the financial challenges you faced in the past year and think ahead to special needs you anticipate in the year ahead. In many cases, having money in savings prevents an unusual or unexpected expense from becoming a major crisis.
Without savings, any major repair, medical bill or large seasonal expense could disrupt your financial stability. For example, paying a car repair bill might leave you short on funds to pay your regular monthly bills on time, leading to late fees or additional interest charges.
Having savings reduces costs, prevents stress and helps you maintain positive relationships with your landlord and other regular vendors.
What seasonal expenses might you want to save for? What emergency expenses might arise? Consider setting saving goals for your tax refund to help prevent a financial crisis in the coming year.
Pay off debt
Your first priority for your refund may be to pay off any problem debt. If you’re behind on a bill, getting caught up is important. If you have high-interest credit card debt, paying it off will save a lot of interest expense, Wollan said.
Make a special purchase
After paying off problem debt, though, it becomes a balancing act: saving for anticipated needs in the coming year versus making special purchases now.
“Keep in mind that spending the money is irreversible. However, if you save a large portion of your refund and no emergencies arise, you can always make purchases later, or next year,” Wollan said.
Most families will make some purchases with their tax refund. Consider purchases that will pay benefits for a long time, so that even six to eight months from now your family will still enjoy what you purchased and feel like it has made your life better.
As you look ahead to tax season, Wollan suggests planning for how you will use your tax refund. Without a carefully thought out plan, it can be easy to spend your refund on the first few good ideas that you encounter, rather than in the ways that will benefit your family the most. Paying debt may be inevitable, but prioritizing substantial savings can set the stage for a year without financial ups and downs.
Barb Wollan is Health and Human Sciences Specialist at Iowa State University Extension and Outreach. She can be reached at 515-832-9597 or bwollan@iastate.edu.
