diff --git a/app/models/budget.rb b/app/models/budget.rb
index acdd128d1..33f34eb2f 100644
--- a/app/models/budget.rb
+++ b/app/models/budget.rb
@@ -155,11 +155,14 @@ class Budget < ApplicationRecord
   end
 
   def actual_spending
-    expense_totals.total
+    [ expense_totals.total - refunds_in_expense_categories, 0 ].max
   end
 
   def budget_category_actual_spending(budget_category)
-    expense_totals.category_totals.find { |ct| ct.category.id == budget_category.category.id }&.total || 0
+    cat_id = budget_category.category_id
+    expense = expense_totals_by_category[cat_id]&.total || 0
+    refund = income_totals_by_category[cat_id]&.total || 0
+    [ expense - refund, 0 ].max
   end
 
   def category_median_monthly_expense(category)
@@ -235,6 +238,14 @@ class Budget < ApplicationRecord
   end
 
   private
+    def refunds_in_expense_categories
+      expense_category_ids = budget_categories.map(&:category_id).to_set
+      income_totals.category_totals
+        .reject { |ct| ct.category.subcategory? }
+        .select { |ct| expense_category_ids.include?(ct.category.id) || ct.category.uncategorized? }
+        .sum(&:total)
+    end
+
     def income_statement
       @income_statement ||= family.income_statement
     end
@@ -246,4 +257,12 @@ class Budget < ApplicationRecord
     def income_totals
       @income_totals ||= family.income_statement.income_totals(period: period)
     end
+
+    def expense_totals_by_category
+      @expense_totals_by_category ||= expense_totals.category_totals.index_by { |ct| ct.category.id }
+    end
+
+    def income_totals_by_category
+      @income_totals_by_category ||= income_totals.category_totals.index_by { |ct| ct.category.id }
+    end
 end
diff --git a/test/models/budget_test.rb b/test/models/budget_test.rb
index cff5cd6cc..cd3e95307 100644
--- a/test/models/budget_test.rb
+++ b/test/models/budget_test.rb
@@ -75,6 +75,130 @@ class BudgetTest < ActiveSupport::TestCase
     assert_nil budget.previous_budget_param
   end
 
+  test "actual_spending nets refunds against expenses in same category" do
+    family = families(:dylan_family)
+    budget = Budget.find_or_bootstrap(family, start_date: Date.current.beginning_of_month)
+
+    healthcare = Category.create!(
+      name: "Healthcare #{Time.now.to_f}",
+      family: family,
+      color: "#e74c3c",
+      classification: "expense"
+    )
+
+    budget.sync_budget_categories
+    budget_category = budget.budget_categories.find_by(category: healthcare)
+    budget_category.update!(budgeted_spending: 200)
+
+    account = accounts(:depository)
+
+    # Create a $500 expense
+    Entry.create!(
+      account: account,
+      entryable: Transaction.create!(category: healthcare),
+      date: Date.current,
+      name: "Doctor visit",
+      amount: 500,
+      currency: "USD"
+    )
+
+    # Create a $200 refund (negative amount = income classification in the SQL)
+    Entry.create!(
+      account: account,
+      entryable: Transaction.create!(category: healthcare),
+      date: Date.current,
+      name: "Insurance reimbursement",
+      amount: -200,
+      currency: "USD"
+    )
+
+    # Clear memoized values
+    budget = Budget.find(budget.id)
+    budget.sync_budget_categories
+
+    # Budget category should show net spending: $500 - $200 = $300
+    assert_equal 300, budget.budget_category_actual_spending(
+      budget.budget_categories.find_by(category: healthcare)
+    )
+  end
+
+  test "budget_category_actual_spending does not go below zero" do
+    family = families(:dylan_family)
+    budget = Budget.find_or_bootstrap(family, start_date: Date.current.beginning_of_month)
+
+    category = Category.create!(
+      name: "Returns Only #{Time.now.to_f}",
+      family: family,
+      color: "#3498db",
+      classification: "expense"
+    )
+
+    budget.sync_budget_categories
+    budget_category = budget.budget_categories.find_by(category: category)
+    budget_category.update!(budgeted_spending: 100)
+
+    account = accounts(:depository)
+
+    # Only a refund, no expense
+    Entry.create!(
+      account: account,
+      entryable: Transaction.create!(category: category),
+      date: Date.current,
+      name: "Full refund",
+      amount: -50,
+      currency: "USD"
+    )
+
+    budget = Budget.find(budget.id)
+    budget.sync_budget_categories
+
+    assert_equal 0, budget.budget_category_actual_spending(
+      budget.budget_categories.find_by(category: category)
+    )
+  end
+
+  test "actual_spending subtracts uncategorized refunds" do
+    family = families(:dylan_family)
+    budget = Budget.find_or_bootstrap(family, start_date: Date.current.beginning_of_month)
+    account = accounts(:depository)
+
+    # Create an uncategorized expense
+    Entry.create!(
+      account: account,
+      entryable: Transaction.create!(category: nil),
+      date: Date.current,
+      name: "Uncategorized purchase",
+      amount: 400,
+      currency: "USD"
+    )
+
+    # Create an uncategorized refund
+    Entry.create!(
+      account: account,
+      entryable: Transaction.create!(category: nil),
+      date: Date.current,
+      name: "Uncategorized refund",
+      amount: -150,
+      currency: "USD"
+    )
+
+    budget = Budget.find(budget.id)
+    budget.sync_budget_categories
+
+    # The uncategorized refund should reduce overall actual_spending
+    # Other fixtures may contribute spending, so check that the net
+    # uncategorized amount (400 - 150 = 250) is reflected by comparing
+    # with and without the refund rather than asserting an exact total.
+    spending_with_refund = budget.actual_spending
+
+    # Remove the refund and check spending increases
+    Entry.find_by(name: "Uncategorized refund").destroy!
+    budget = Budget.find(budget.id)
+    spending_without_refund = budget.actual_spending
+
+    assert_equal 150, spending_without_refund - spending_with_refund
+  end
+
   test "previous_budget_param returns param when date is valid" do
     budget = Budget.create!(
       family: @family,