April is not the cruelest month -- at least, not when it comes to getting a little extra cash in your pocket.

For more than three-quarters of American taxpayers, the silver lining of tax season is getting a refund check. This year, the average refund is just under $3,000, according to the Internal Revenue Service. For many, the top priority for that money will be paying off debt or covering other expenses. But for others, it's an opportunity to save or make an investment.

Tricia R. Schroeter, who works as research administrator in Palo Alto, Calif., says she and her husband used their 2010 refund of about $5,000 to pay a chunk of their property taxes. They own a home in San Mateo County, where their annual property taxes add up to more than $10,000.

"We pay about half in December," she says. "Then we hope we get a refund to pay toward it in April." Schroeter says she has always taken a pragmatic approach to her IRS refunds. Fifteen years ago, she was a single mom and had to make every penny count.

"I made sure I would claim enough so I would get a return," she recalls. "It always went to paying bills. I could never afford to buy luxury."

Like Schroeter, millions of Americans rely on the annual refund to save money throughout the year as a way to pay bills or other expenses. Nearly 50% of taxpayers surveyed in February 2011 by the National Endowment for Financial Education planned to pay down debt with their expected refund; 44% said the money was earmarked for savings.

[Check your refund status]

Get the Most Bang for Your Buck

If you owe debts in multiple places, following the playbook for good financial planning may not be as simple as pay down or save.

Carmen Wong Ulrich, author of the The Real Cost of Living, says you need to ask yourself where you will get the most bang for your buck. High-interest-rate credit cards should be the first priority when paying down debt.

For savers, she advises padding your bank account to have a "pop-up expense fund."

"Sometimes as little as an extra couple hundred dollars in your account can be the difference between going into debt when the car breaks down or the heater conks out, and not going into debt," Ulrich says. "Fund that pop-up fund if you don't have one, and then your emergency fund."

Is Your Withholding Too High?

While a tax refund is a sweet financial booster -- helping to pay bills and further financial or career goals -- experts debate whether the prevalence of big refunds may actually hurt some taxpayers, particularly low-income groups.

Damon Jones, an assistant professor at the Harris School of Public Policy at University of Chicago, has researched why refunds are deployed. He argues that one reason they have become so prevalent is simply that people don't take the time to adjust their income withholdings throughout the year.

"For people who live paycheck-to-paycheck, they could lower their withholdings and that additional income on each paycheck could be useful in making ends meet," he says. "Instead, that money is backloaded into a refund and affects the timing of income during the year."

As a financial planning expert, Ulrich agrees. She advises people to look closely at how much income they are withholding. Overpaying is, in the simplest terms, giving the government an interest-free loan on your money.

"A refund means that you've been handing your money over to the IRS with every single paycheck -- too much money. And that money that should be in your pocket or your bank account," she says. "Work on your withholding numbers so you don't get a big check next year but instead get a bigger paycheck every month."

[Calculate your proper withholding]

Investing in Yourself

If you do have the urge the splurge, you're not alone. Tony Tavarez, 28, works as a public safety officer and actor in New York City. He has the luxury of saving and spending his refund this year.

Tony TavarezIn 2010, Tavarez (pictured, right) went to school and had many medical expenses that counted as write-offs. That earned him an unexpectedly large refund of about $5,000 this year. Originally, he planned to open an IRA account with his refund, but after an acting gig this winter revived his commitment to his creative career, he opted to spend $1,700 of his refund on a membership with AFTRA, the union for television and radio artists.

"I thought it would be good investment in my career and motivate me to take what I want to do more seriously," Tavarez says. The remainder is going into savings to pay for classes this summer at the Atlantic Theater School.

Investing in self-growth is another way to spend a check from the IRS. Take Allison (not her real name), a lively 30-something office manager who lives in New York City. She used her tax refund to buy sessions with a dating coach. Since breaking up with a serious boyfriend several years ago, none of her relationships has lasted more than a few months. This is her year to change that trend, she says.

"I've worked on my health with an acupuncturist, and I have worked on my body with private yoga and pilates with great results. Since it's not a sacrifice to do this with my tax return money, working with a dating coach makes sense to me," she says. "I don't want to be single the rest of my life."

Purchases that can add real value to your family's quality of life are important as well. "Think of these as 'investments' in your life as they lead to happiness, shared memories and peace of mind," says Ulrich. She suggests spending on things that can bring your family together, like a vacation or new bikes for the summer.

For other taxpayers, a little extra cash is just that: mad money for a special indulgence.

"I am getting an iPad," says Charlotte Thomas-Davison, 35, an architect who lives Providence, R.I. Her refund this year was around $900. The remainder she says is going to treats for her dog, a 13-year-old rescue greyhound.

"He worked hard this year," she says about her pooch Wyatt, who likes to sleep on the couch. "He deserves a treat too."


Catherine New is a personal and consumer finance reporter for DailyFinance.com and Aol Huffington Post.

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crkbirdie

Try to not get a large refund! If you normally over pay $3600 a year, use the extra $300 per month to pay off your debts. Charge cards first and then your mortgage.

April 18 2011 at 11:36 AM Report abuse rate up rate down Reply
Imcoming2getu

For some reason, I'm one of those persons who didn't have to pay taxes, even though I declared my income and had write offs. There are so many write offs, that if you play your cards right, you won't have to pay much, if at all, except SS. I think my husband is getting a whopping $16 back.

April 18 2011 at 1:28 AM Report abuse rate up rate down Reply
DJG Pricess

i am going to spend my tax refund on a t.v. big screen.

April 18 2011 at 1:11 AM Report abuse rate up rate down Reply
dobielvr2

I am going to go out on a spending spree!
I got a whopping $8 back this year :(

April 16 2011 at 2:52 PM Report abuse +1 rate up rate down Reply
gwhjelm

I won't be spending one dime of my tax return in Wisconsin!

April 15 2011 at 8:54 PM Report abuse rate up rate down Reply
Dr..Ben

Spell jail!

April 15 2011 at 5:02 PM Report abuse rate up rate down Reply
Dr..Ben

If you get a refund, I get a small one each year, I suggest taking out a $500 cd. I have been doing this for the last couple of years. Trust me, they add up. Eventually, you wil end up with free checking and all the benefits that your bank provides. Plus you are saving!

April 15 2011 at 5:02 PM Report abuse rate up rate down Reply
kharley471

I will pay toward my students loans, and maybe buy a nice steak to grill with veggies.

April 14 2011 at 5:06 PM Report abuse +2 rate up rate down Reply
therule72

Refund??... ya don't get "refunds" if ya don't pay taxes... why not join the 47% of freeloaders who DON'T PAY TAXES??...it's a wonderful feeling to see all you working suckers pay my bills... yah, yah!!!!

April 14 2011 at 10:37 AM Report abuse -3 rate up rate down Reply
1 reply to therule72's comment
kharley471

Hm, I could not reply to your previous comment, but can to this one. Well, I am getting a refund because of various credits, in part because I was working toward my Master's, and I am happy to pay my taxes if they help you. The taxpayers helped me, you see, to get an education. If you don't pay taxes, then I am sure you pull your weight in other ways; if not, I cannot do anything about it except to continue to make this a better world, myself. We are none of us going to take the $$ with us when we finally kick the bucket.

April 14 2011 at 5:11 PM Report abuse +2 rate up rate down Reply
howardfrenkfort

I am going to spend it as quickly as possible, then, become rich.

April 14 2011 at 10:23 AM Report abuse +1 rate up rate down Reply