Tax refunds start to arrive. Will consumers spend or save?

The 2025 tax filing season for tax year 2024 opened on January 27 and will run through April 15. This is the normal length of a tax season of about 11-12 weeks. The IRS filing season statistics show that the pace of filling in the first four weeks of the season is slower than the prior year, which in turn means that the pace of processing is also slower.

However, it is also true that those who can file electronically and who are expecting a refund are prominent in the first wave of filings. Early filers also are those who are expecting the largest refunds. The size of the average refund tends to peak in the third or fourth week of the filing season and then steadily decline. In the February 21 week – the fourth week of the 2025 season – the average refund jumped to $3,453 from $2,169 in the February 14 week, $2,065 in the February 7 week, and $1,928 in the January 31 week. The February 28 week’s average refund size may be a bit higher, but if so, not by much. The trend is going to be lower in a week or two.

Now the question is what use households will make of the refunds? Will they spend, save, or reduce debt? With consumer confidence weakening and worries about job security on the rise, it is likely that the latter two options are going to be more attractive. Tax refunds received in February and March may not be as much of a boost to consumer spending as is often the case. And if businesses believe that this is the case, plans for seasonal hiring may be more modest than usual. Early estimates for GDP growth in the first quarter 2025 have been seeing downward revisions that could erode further. The average of the three district bank GDP Nowcasts for the first quarter is down to up 1.98 percent in the February 28 week, down from 2.34 percent in the prior week, and 2.48 percent two weeks before.