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I've Filed My Taxes. What Happens Now?

So you’ve finished filing your taxes? Congratulations! That’s one small step for you, and one giant step for your finances. No one likes filing taxes, and the thought of owing the IRS can be a sinking feeling. But procrastinating and not knowing whether you owe or not is worse! So kudos for jumping in and getting that pressure off your shoulders.

Now that you’ve filled out your federal and state tax returns (if your state has state income taxes), let’s talk about what your next steps should be, whether you’re expecting a refund or you owe Uncle Sam taxes. The key in both situations is to have a plan for your money, and that’s where your budget comes into play.

I’m Getting a Refund. What Should I Do With It?

First of all, let’s talk about that refund.

Most people think getting a big, fat refund from Uncle Sam is a good thing, but here’s the rub: When you get a tax refund, it’s not free money. It just means you’ve been loaning the government your money interest-free throughout the year, and the IRS is just finally returning money that was yours to begin with. Not cool.

But if you do get a refund (hopefully just a small one), there are a few different reimbursement options to choose from. Direct deposit is the safest and fastest option—you may even get your refund within a few weeks. That means now’s the time to plan where it’s going. So let’s look at what to do with your tax refund.

1. Add it to your emergency fund.

Unexpected trips to the ER, car transmission kicks the bucket, your kid practices his swing a little too close to the kitchen windows . . . yep, life happens. And it’s usually at the most inconvenient times, right? That’s why having an emergency fund can be a lifesaver when it comes to your budget.

According to The State of Personal Finance Annual Report, more than a third (34%) of Americans have zero savings. Yikes! That’s a lot of stress and anxiety that can easily be avoided when life throws you a curve ball.

If you currently have nothing saved for emergencies, create a starter emergency fund of $1,000. That’s Baby Step 1 of getting your finances in shape and having a plan for your money. A thousand bucks will cover the smaller unexpected costs that pop up until you finish Baby Step 2, which is paying off your debts smallest to largest using the debt snowball. Kicking debt out the door will free up your income, and then you can level up to Baby Step 3: Increasing that emergency fund until you have 3–6 months of expenses covered.

2. Pay off debt.

If you’ve saved your $1,000 starter emergency fund, use your refund for Baby Step 2—paying off your debts smallest to largest. When you get that check in the mail or see it deposited in your account, it’s tempting to blow it all on your wish list. But don’t lose focus on your goals. Throw it at your smallest debt so you can pay it off and build momentum in your debt snowball. You’ve got this!

3. Add it to your down payment.

Saving for a new house? We recommend getting out of debt and having a fully funded emergency fund first. If you have an emergency fund, a solid down payment, and no debt to tie up your budget, you’ll have peace of mind when you find the right house, and it’ll turn out to be a blessing, not a curse!

Don’t settle for tax software with hidden fees or agendas. Use one that’s on your side—Ramsey SmartTax.

Aim for a down payment that’s 20% or more of the total home price—that’s $40,000 for a $200,000 house. A 20% down payment is ideal because you won’t have to pay private mortgage insurance (PMI) on top of your monthly mortgage payment. If you’re a first-time home buyer, a 5–10% down payment is okay too—just be ready to pay PMI.

4. Invest it for retirement.

If you’re out of debt and you’ve finished building your emergency fund, consider putting your tax refund toward retirement. Baby Step 4 is to invest 15% of your household income in retirement, and though your tax refund might be small, it could go a long way when invested long term.

We recommend a Roth 401(k) or Roth IRA because money you put into a Roth account grows tax-free. You won’t owe taxes when you start taking that money out once you retire, no matter how much it’s grown or how much the tax rate has increased over the years.

5. Save it for your children’s college fund:

If there’s one thing we can all agree on, it’s that a college education is expensive. And student loans are easy to get, but they’re a financial trap that can haunt people for decades after they graduate. So Baby Step 5 is to save for your children’s college funds, and that’s a great way to spend your tax refund. We recommend 529 plans or ESAs (Education Savings Accounts).

I Owe Taxes. What Should I Do?

First of all, take a deep breath. It’s not the end of the world. Forking over your hard-earned money to Uncle Sam is painful, but when it comes to paying the taxes you owe, you have options. So grab a cup of coffee and let’s look at a few different ways you can settle up with Uncle Sam:1

1. Pay your tax bill by Tax Day.

Even if you file your tax return in February or March, your tax bill isn’t due until Tax Day (April 18 this year). You might be wondering if a tax extension will give you more time to pay. It won’t. An extension just gives you more time to file, but your taxes are still due on Tax Day. If you pay late, you’ll have to pay interest and penalties on any taxes you owe for the year. So pay as much as you can by the tax deadline.

2. Apply for a short-term online payment plan.

If you can’t pay any or all of your tax bill by Tax Day, the IRS gives you a few options. The first is a short-term payment plan (120 days or less) for bills that are less than $100,000 in combined tax, penalties and fees.

3. Set up a long-term online payment plan.

If you owe less than $50,000 in combined tax, penalties and fees, you may qualify for a long-term payment plan (longer than 120 days) with monthly installments.

4. Request a monthly payment plan.

If you don’t qualify for an online payment plan, you can request an installment agreement with the IRS. You’ll need to submit Form 9465, Installment Agreement Request. On that form, you’ll include the amount you think you can pay each month. Just remember you’ll be charged interest and penalty fees, so pay as much as you can each month until your bill is paid. 

Now that you know your options, sit down and look at your budget and see where you can free up money to pay your tax bill by Tax Day or start making those payments.

Things like restaurant spending, movie money and clothing cash can be adjusted for a month or two. If that’s still not enough, you can temporarily divert some savings (think car funds or Christmas funds). And as a last resort, you can dip into your emergency fund. Remember: There’s no need to panic, but you do need to be smart and intentional. Get Uncle Sam off your back as soon as possible.

How Can I Plan Ahead for Next Year’s Taxes?

If you experienced whiplash from a big tax bill or refund this year, we have good news. You can make some simple changes right now so it doesn’t happen again.

One of the most common reasons people end up owing taxes is that their tax withholding is off. Remember that W-4 form you had to fill out when you started your job? It’s a tax form that determines how much money your employer withholds from your paycheck for taxes.

You may need to update your information on a new W-4 so your employer withholds the right amount—not too much or too little. Here are some of the details you may need to update:

  • Your filing status: Single, head of household, married filing jointly, married filing separately or qualified widow(er)
  • Multiple jobs or working spouses: If you (or your spouse if you’re married filing jointly) have more than one job
  • Claiming dependents and other credits: If you have any children or other dependents who qualify for the child tax credit (more details on this credit below) or other tax credits for dependents
  • Other adjustments you want to make: If you have other forms of taxable income (not from a job) you want to withhold taxes for or if you want more money withheld from your paycheck for additional taxes

If you’ve been receiving large refunds every year, getting your withholdings right will give you more money in your pocket with each paycheck. And that will help give you some margin in your budget for whatever Baby Step you’re on. Talk about a win-win situation!

If you started a new side hustle or independent contractor work, it can really jack up your taxes because you don’t have an employer withholding income taxes for you. You’ll also be on the hook for the 15.3% self-employment tax, which makes up the employee and employer portions of your Social Security and Medicare taxes.2 So plan to set aside 25–30% of every paycheck you get for your side gig, and pay your quarterly taxes. That way, you don’t get blindsided on Tax Day.

Adjusting your withholdings and setting aside a portion of your independent contractor or side hustle paychecks will help you avoid that gut-wrenching feeling next tax season. And to cut down the stress of tax season even further, make sure you keep good records throughout the year—especially if you’re a small-business owner. That means tracking your income and expenses as you go and having a system to organize all your receipts and statements.

To make your future tax-filing experience go as smoothly as possible, gather all your tax documents before you visit with your tax pro or start filing with your online tax software. Here are some of the more common tax forms and documents you might need:

  • W-2s
  • 1099s
  • Mortgage interest statements
  • Investment income statements
  • Charitable contributions statements and receipts

To help you get all your ducks in a row, download our free tax preparation checklist.

Make a Plan for Your Money—Start Budgeting Today!

We’ve said it before and we’ll say it again: The way to avoid money stress is to have a plan for your money and stick to it. That’s where the 7 Baby Steps come in. If you’re looking for a proven plan to help you tackle debt and start saving, check out Financial Peace University, our nine-lesson course that will explain all the details about the Baby Steps and give you the game plan to winning with your money!

Ready to start budgeting? Our free EveryDollar app will help you set up a monthly plan for your money, so every one of your dollars will have a job to do. Get started on your financial goals today!

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Ramsey Solutions

About the author


Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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