What to Do With Your Tax Refund? Save for Emergencies.

The average federal income tax refund is smaller this year, but it’s still almost $3,000. And for strapped taxpayers, that can provide a financial boost.

As of March 24, the average federal tax refund was $2,903, down 11 percent from $3,263 at the same time last year, according to the Internal Revenue Service. The drop is primarily the result of the end of more generous tax credits, which were temporarily expanded as part of the federal pandemic relief program.

For families of limited means, in particular, a tax refund is one of the few times they get a large lump sum of cash, and allocating the money wisely can help stabilize finances. “It’s the single biggest payment these households will receive all year,” said Stephen Roll, associate director of research at the Social Policy Institute at Washington University in St. Louis, who studies economic security.

Ideally, recipients can put at least part of their refund into an emergency savings account or pay down debt. Both are smart options, financial advisers say, considering that a recession is possible and that inflation, while easing, is still high enough to strain household budgets. A quarter of Americans have no emergency savings to cover short-term financial hardships, according to the Consumer Financial Protection Bureau.

People often use their refunds to repay money borrowed for unexpected expenses, such as medical bills or car repairs — and that’s good, Dr. Roll said. Paying down double-digit credit card debt saves more than depositing the money in a savings account (even though rates are rising on high-yield savings accounts).

Setting aside some cash can help smooth out the effect of surprise bills or fluctuating income. “When — not if — the unexpected happens, they’ll be prepared,” said Cindy Scott, a certified financial planner with Schwab Intelligent Portfolios Premium, an automated investment service.

How best to do that? America Saves, a nonprofit initiative of the Consumer Federation of America, recommends the “past-present-future” approach (or the “30-40-30” approach, if you prefer numbers). The director of the nonprofit America Saves, Kia McCallister-Young, explained that it calls for allocating 30 percent of your refund to reduce your debt (spending from the past); 40 percent for current needs or wants, part of which can be allocated to emergencies; and 30 percent to your future — for college or retirement savings, a down payment on a home, or even a well-deserved vacation.

Based on this year’s average refund, that would mean about $870 to debt, $1,165 to your emergency fund and current spending, and about another $870 to the future. People can tweak the amounts, though, depending on their priorities. “You get to decide,” Ms. McCallister-Young said.

Some savers may be overwhelmed by the idea of trying to accumulate a lot of money in savings when their paycheck may barely cover the basics. Standard rules of thumb call for a rainy-day fund that would cover at least three months’ worth of income or expenses, like housing, food and transportation. Dr. Roll said it might be less daunting to start smaller — say, aiming to save six weeks’ worth of income and using your refund to build toward that goal.

When filing your tax return, you can direct the I.R.S. to split your refund between different accounts. You can, for instance, deposit part in a spending account and part in a savings account. By committing to the savings when you file your return, you’ll be less tempted to spend the money.

Reframing how you think about savings can also help. Think of it as “paying your future self,” Dr. Roll said, instead of money that you can’t spend — and envision how you’ll feel months from now when a financial need arises. “How will your future self feel,” he said, “if you have that money on hand?”

Once you’ve set aside the cash, he said, don’t be afraid to use it if you need it: “Those funds are there to be spent.”

Here are some questions and answers about managing refunds and tax time:

When is the tax filing deadline this year?

The federal filing deadline for most Americans is April 18. But the I.R.S. has extended the deadline for people living in areas hit by recent natural disasters. Residents recently affected by severe storms and tornadoes in parts of Mississippi and Arkansas, for example, have until July 31.

What if I want more money in my paycheck instead of getting a large refund next year?

Some people use refunds as a forced savings tool by intentionally “over-withholding” taxes from their paycheck. But if you want to have more cash to pay expenses throughout the year, you can adjust the amount of tax withheld. Ms. Scott at Schwab suggested using the I.R.S.’s online withholding estimator to calculate the right amount. Then, use that information to fill out I.R.S. Form W-4 and give it to your employer.

(If you’re confused, she said, consider seeking professional advice to avoid the opposite problem. If you have too little tax withheld, you may have to write a check at tax time next year.)

Where can I get free help with my tax return?

The charitable arm of AARP, the advocacy group for older Americans, offers free, volunteer tax preparation through its Tax-Aide program through April 18. While the service focuses on people 50 and older with low or moderate incomes, anyone is eligible for help. For details, check the AARP Foundation Tax-Aide website. The I.R.S. offers its Volunteer Income Tax Assistance program, or VITA, for people with incomes of $60,000 or less, as well as those with disabilities or who speak limited English. You can search for locations online.

If you’re comfortable doing your own return, the I.R.S. offers options through its Free File program; free online tax software is available for people with income of $73,000 or less, and free online forms are available to anyone.

If you need help with issues other than filing a return, like possible identity theft, the I.R.S. is offering walk-in help with no appointment needed at some of its Taxpayer Assistance Centers on Saturday, April 8, and Saturday, May 13. For details and to find locations near you, check the agency’s website.

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