5 Things To Do With Your Tax Refund Amid a Looming Recession
Written by
Josephine Nesbit
Edited by
Rebekah Evans
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U.S. economic growth has slowed down in 2025. While we aren’t currently in a recession, there are smart financial moves you can make with your tax refund in case the economy continues to cool.
Last year, the IRS refunded more than $245 billion to over 86 million taxpayers with an average tax refund of $2,850. It may be tempting to splurge, but this also gives you an opportunity to prepare for potential waves in the market.
Here’s what to do with your tax refund amid a looming recession.
Build Your Savings
Americans often struggle with building an emergency fund, but it can help you pay for unplanned expenses or financial emergencies, like car repairs, medical bills or loss of income.
According to data from the Board of Governors of the Federal Reserve System, 54% of all adults have three months of emergency savings. Still, some experts recommend saving at least six months’ worth of living expenses.
Pay Off High-Interest Debt
The higher the interest rate on a credit card or loan, the most you end up paying on top of what you originally borrowed. A recent Experian report found that the average credit card balance increased by 3.5% to $6,730 in 2024 and the average credit card APR was 23.37% as of Q3 2024. Paying off high-interest debt an give you some extra breathing room if your income goes down.Â
Boost Retirement Contributions
If you have the ability, consider putting your tax refund into your IRA or 401(k). You can use all or part of your refund to grow your money and better prepare for retirement. Contributing toward your retirement accounts and investing in a downturn could pay off later when markets recover.
Invest In Skills or Education
Consider using your tax refund to invest in courses, training or certification. This can help you make a pivot or take your career to the next level. If you take advantage of the lifetime learning tax credit — a credit worth that reduces your tax bill dollar-for-dollar for a portion of tuition, fees and other qualifying expenses — you may be able to reduce your tax liability by as much as $2,000 next tax year.
Start a Business
During a recession, companies often look to cut costs by reducing staff. In late 2009, during the Great Recession, the Bureau of Labor Statistics reported that more than 15 million people were unemployed and total employment dropped by 8.6 million or almost 6%. Use the tax refund to start a side hustle or to set up a passive income stream to recession-proof your income.
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