Suze Orman: Don’t Treat Tax Refunds as Free Cash

During tax season, personal finance author Suze Orman advised taxpayers not to treat tax refunds as found spare cash and recommended using refunds to shore up finances rather than spending on impulse.

Orman explained refunds commonly come from over-withheld income taxes or refundable tax credits and highlighted the trade-offs of receiving a large refund. She noted that overpaying taxes effectively gives the government an interest-free loan.

Her top recommendation was to use refunds to pay down high-interest credit card debt to reduce monthly interest charges and improve credit scores.

She suggested allocating part of a refund to create or grow an emergency fund covering several months of living expenses. For people without retirement savings, she recommended contributing to a tax-advantaged IRA or increasing 401(k) contributions through an employer plan.

Orman urged taxpayers to review and, if needed, correct withholding on the IRS Form W-4 so take-home pay better matches annual tax obligations and fewer refunds result at tax time. She advised checking withholding after life events such as marriage, the birth of a child or a job change.

Other practical uses mentioned included covering necessary home or vehicle repairs that could become more costly if delayed, or making an additional mortgage principal payment to reduce interest over time. She cautioned against using refunds for one-off discretionary purchases that do not improve household finances.

Financial professionals note the appropriate use of a refund depends on individual circumstances, including existing emergency savings, debt levels and retirement goals. Orman recommended consulting a tax professional or financial advisor before changing withholding or redirecting refund money into investments. Taxpayers can submit an updated W-4 to their employer or use the IRS withholding calculator to estimate the correct amount to withhold.