What Is a Tax Refund?

By Jeremy Bowman – Updated Feb 25, 2025 at 9:33 AM EST

Key Points

Tax refunds occur when taxes paid exceed taxes owed, often leading to significant payments.
The average tax refund in 2023 was $2,753, impacting personal and economic activities.
Most Americans receive their tax refunds within weeks of filing, enhancing short-term spending.

In the U.S., paying your taxes isn't exactly straightforward. Some people have their taxes withheld by their employer, while others estimate them throughout the year and pay them quarterly. However, most Americans don't know how much they will owe in taxes at the end of the year. Typically, they either owe extra money or receive a tax refund.

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A 1040 form and tax refund check. — Image source: Getty Images.

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Tax Refund

A reimbursement some Americans get from the federal or state government after filing taxes if they overpaid taxes during the year.

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However, Americans often spend their refunds when they get them. For example, used vehicle sales tend to pop in the spring after refund season as Americans suddenly have a few thousand extra dollars to get a new set of wheels.

Others plan to pay off bills, including credit card debt; add money to a savings fund, such as an emergency fund; or use the refund for a home improvement project. For many Americans, the refund helps make the tedious process of filing taxes more tolerable, acting as a bonus for getting it done.

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If you're self-employed or own a business, you'll have to estimate the personal tax you owe each quarter, which leaves even more room for error. That makes it easy to end up getting a refund. If you're a W-2 employee, you might get a refund if you had a child during the tax year, your deductions were large enough to itemize, or your spouse brought in less income.

If you're paying estimated taxes, there are even more reasons you might get a refund, but they all stem from you paying more than you owe throughout the year. About 64% of tax returns result in a refund, so you're more likely than not to get one this year.

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About the Author

Jeremy Bowman has been a contributing Motley Fool stock market analyst, covering technology, consumer goods, and macroeconomic trends since 2011. Before The Motley Fool, Jeremy was a newspaper reporter, restaurant manager, and English teacher abroad. He holds a bachelor’s degree in English from Colorado College and a master’s degree in business administration from American University. One of his Motley Fool headlines was briefly featured on Late Night with Stephen Colbert.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intuit. The Motley Fool has a disclosure policy.