Why You Received Less in Your Tax Refund—and What You Can Do About It

One possible explanation for a smaller tax refund might be if you adjusted your withholdings By adjusting your W-4 to have less deducted from each paycheck, you essentially got higher take-home pay during the year, which led to receiving a smaller refund.

Another factor is an increase in income If you got a salary increase at your present job or made more money in a new role, you may have been bumped up into a higher tax bracket. Failing to adjust your withholding to accommodate this extra income could result in receiving a smaller refund.

Take the case of Helen, who made $55,000 in 2023 with $6,000 deducted, which led to a refund of $1,200. The following year, after earning $65,000 and engaging in freelancing without changing her withholding amounts or making quarterly payments, she ended up owing $300 when filing taxes.

Receiving Social Security benefits It can also affect your refund. Should you receive considerable extra income, you might incur additional tax liabilities. As an example, if your total income surpasses $34,000, as much as 85% of your benefits might become subject to taxation.

Claiming fewer deductions or credits This could result in receiving a smaller tax refund. Choosing the standard deduction over itemization, or becoming ineligible for credits such as the Child Tax Credit, might decrease the amount you receive back.

Changes in dependents It can also impact your refund amount. Gaining a new family member may entitle you to extra credits, which could boost your refund size; conversely, losing a dependant might reduce it.

If you sold investments For assets like stocks or cryptocurrencies, the profits from their sale are considered taxable income. Large capital gains may decrease your refund amount.

Paying off deductible debts Similar to a mortgage or student loan, certain deductions can also affect your tax refund. In their absence, you may end up owing more in taxes, which would decrease your refund amount.

Outstanding debts It can decrease your refund amount. Should you have outstanding balances for student loans, past due taxes, or child support, the government may cut down your refund as payment toward these federal obligations.

Experiencing a major life event Marriage, divorce, natural disasters, disabilities, or purchasing your first home can shift your tax circumstances. These events might modify your filing status and impact your refund.

Starting a side job This could also affect your refund amount. Earnings from freelancing or self-employment are subjected to self-employment taxes. If you do not make estimated tax payments or modify withholding, your refund may be reduced.

Check:

The IRS might audit you in 2025 if your deductions are excessively high (with 7+ potential reasons).

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