4 Key Signs Your Tax Refund Is Going To Be Too Big (And What To Do About It)
Written by
Kerra Bolton
Edited by
Renee Ross
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Americans are getting bigger tax refund checks. But is that good news?
“If you are consistently receiving a large refund over a thousand or more, it may be a sign that you are overpaying taxes throughout the year,” said Chad Gammon, owner of Custom Fit Financial.
Here are fourkey signs that your tax refund is going to be too big (and what to do about it).
Your Withholding Allowances Are Too High
According to the U.S. Internal Revenue Service (IRS), the average refund check this year was up by 4.6% or $3,011 compared to $2,848 last year.
A study conducted by Qualtrics on behalf of Intuit Credit Karma found that more than one-third of taxpayers (37%) said they planned to use some or all of their refund to pay for necessities.
“Some people reason that the refund is a good way to force savings,” Gammon said. “If this is a worry, make sure you automate your savings into your emergency fund, pay down debt or invest into your retirement account.”
You Experienced a Major Life Change
Getting married or divorced and having children can significantly impact your tax situation.
According to the Taxpayer Advocate Service, an independent organization within the IRS, marrying and deciding to file jointly makes taxpayers eligible for many tax deductions and credits, possibly increasing your refund check.
“One way to address this is to update your W-4 form from your employer,” Gammon said. “The W-4 form will allow you to make adjustments to not withhold as much.”
In addition, Gannon suggested using the IRS’s tax withholding estimator to help with the W-4 form.
You Have Multiple Income Streams
The latest data from the Bureau of Labor Statistics (BLS) found that nearly 9 million people have worked multiple jobs to help make ends meet.
Having more than one employer can complicate withholding calculations, especially if your jobs withhold because they are your only income source. Taxpayers who have additional income sources from freelancing or investments and didn’t account for the extra money in their withholdings can also cause your tax refund to be too big.
The end of the year is the perfect time to start organizing your 2024 financial information for taxes, Gannon said.
“You can look at your estimated tax for 2024 via tax software or a financial planner can assist,” Gannon said. “There is still an opportunity to make adjustments on your W-4 or make estimated tax payments. You can also look to maximize contributions to your tax-advantaged accounts such as your 401(k) or HSA.”
You’re Overestimating Deductions
Many taxpayers aren’t taking all of their eligible withholdings and tax deductions.
In recent years, the IRS has recommended that taxpayers do a paycheck checkup for opportunities to change their withholding so they can get the refund they want next year. Adjusting your tax withholding this year is the best way to make sure you aren’t overpaying the federal government and can direct funds to serve your financial goals.
In addition, Gannon said the standard deduction limit is “quite high,” and many people will not need to itemize.
“But if you give a lot to charity or have a lot of health costs, save the receipts to give to your tax preparer,” Gannon said. “Many of the documents that you will use to create your 2024 taxes will come to you in 2025.”
More From GOBankingRates
