Why Is My Tax Return So Low in 2025? 10 Common Reasons
Written by
Rudri Patel
Edited by
Elizabeth Constantineau
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If your 2025 tax refund is smaller than you expected, you’re not alone — and there may be good reasons behind the dip. Changes in your income, tax credits or withholding can all affect how much you get back. Here are the most common reasons for the question, “Why is my tax return so low?” and what you can do about it.
10 Common Reasons Your Tax Refund Is Lower This Year
1. You Adjusted Your Withholdings
If you updated your W-4 to withhold less from your paycheck, your refund will be smaller — because you already received more take-home pay.
2. Your Income Increased
A raise from your current job or more income from a new job may push you into a higher tax bracket. If you don’t adjust your withholding to reflect the additional income, you will receive a smaller refund.
Quick Example
In 2023, Sam earned $55,000 and had $6,000 withheld, resulting in a $1,200 refund.
In 2024, after earning $65,000 and taking on freelance work without adjusting his withholding or making estimated payments, he owed $300 at tax time.
3. You Started Receiving Social Security
If you received Social Security benefits but still earn substantial additional income, then you’ll need to pay extra taxes. For example, if your combined income is over $34,000, up to 85% of your benefits could be taxable.
4. You Claimed Fewer Deductions or Credits
Taking the standard deduction and not itemizing deductions could potentially result in a lower tax refund. Likewise, claiming fewer tax credits has a similar effect.
For instance, if you are no longer eligible for the Child Tax Credit, then this could lower your refund.
5. You Had a Change in Dependents
Having a child or losing a dependent can impact your refund.
Having a child may make you eligible for a credit and potentially a larger refund.
6. You Sold Investments
Profits from selling stocks and cryptocurrencies is considered taxable income. If you had significant capital gains, your refund is reduced.
7. You Paid Off Deductible Debts
If you finally paid off your mortgage or student loan, you won’t be able to take as many deductions from your owed taxes and may receive a lower refund.
8. You Owed Other Debts
Your refund will be reduced if you owe money on student loans, back taxes and child support. The government may reduce your refund to pay off federal debts like taxes and loans.
9. You Experienced a Significant Life Event
Did you get married or divorced? Did you experience a natural disaster, suffer from a disability or buy a house for the first time?
All of these circumstances could trigger a change in your filing status and affect your tax refund.
10. You Started a Side Gig
Income from freelance work or side gigs is subject to self-employment tax. If you didn’t make estimated tax payments or adjust your withholding to account for this income, it could reduce your refund.
What Affects the Size of Your Tax Refund?
If you’ve been asking yourself “Why is my tax return so low,” it usually comes down to a few key factors like changes in your income, withholdings or eligible credits. Here’s a quick breakdown:
| Factor | Impact on Refund |
|---|---|
| Tax withholding | More withholding = bigger refund Less withholding = smaller refund |
| Income level | Higher income or side gig income means less refund if you don’t withhold properly |
| Refundable credits | Child tax credits, dependent care credits, earned income tax credit and other applicable credits can boost your refund |
| More dependents | May increase your eligibility for a larger refund |
| Filing status | Impacts your bracket and the deductions you can take |
| Life events | Marriage, having children, switching jobs and other major life changes can impact the size of your refund |
| Debts | If you have student loans, child support or back taxes, it may reduce your refund. |
Recent Tax Law Changes Affecting Refunds
Wondering what may impact your federal income tax refund? Here is chart that shows how the current law may impact your refund:
| Category | Change | Effect on Refund |
|---|---|---|
| Standard deduction | Increase in all filing statuses: -Single: $14,600 -Married Filing Jointly: $29,200 -Head of Household: $21,900 |
This reduces taxable income and so may make you eligible for a larger refund. |
| Tax brackets | Inflation-adjusted brackets shift slightly higher | You may receive a larger refund. |
| Child tax credit | Increased from $1,600 to $1,700 | Increase in credit may mean a larger refund. |
| Premium tax credit | Expanded access extended through 2025 | Lower premium costs may mean an increase in your refund. |
| Payment app reporting delay | $600 1099-K rule delayed; $5,000 threshold applies for 2024 returns |
Less taxes owed for those who use payment apps. |
How To Avoid a Smaller Refund Next Year: 5 Quick Strategies
Understanding why is my tax return so low this year can help you take proactive steps to increase your refund next year. Here are some strategies to avoid a smaller tax refund:
Adjust Your W-4 Withholding
Use the IRS withholding estimator and enter your income, dependents and filing status. You will receive an estimate of how much you should withhold.
Make sure to fill out your W-4 changes and give it to your employer. You can elect for extra withholding 4(c) to possibly bump up next year’s refund.
Report Side Gig or Freelance Income Early
If you earn freelance, side gig, rental or contract income, make certain to make a record of that income.
You likely need to pay quarterly taxes, but also need to keep track of your business expenses. Tracking business expenses may reduce your tax liability.
Claim All Your Credits
Certain life situations will earn you credits. Here are some examples:
- If you have a child, you could be eligible for a child tax credit and a dependent care credit (if you use daycare).
- Dependent children in college earn you the education credit.
- Low to moderate income will help you qualify for an earned income tax credit.
Understand What Deductions Will Maximize Your Refund
Decide whether you want to take the standard or itemized deductions.
For example, if you own a home, pay state taxes, have large medical bills or give charitable donations, it may benefit you to take an itemized deduction.
Continue to Review Your Tax Status Throughout the Year
Adjust your withholdings if a major change has occurred. Always check if your income matches your withholdings.
Troubleshooting Low Refunds: What to Do
If your tax refund came in lower than expected, or didn’t arrive at all, there are a few steps you can take to figure out why and possibly fix the issue:
- Review your W??’4 form. If you noticed a big difference in your refund this year, your paycheck withholdings might be off. Use the IRS Withholding Estimator to check your current setup and adjust your W??’4 through your employer if needed.
- Check for federal or state offsets. Your refund could have been reduced to cover unpaid debts, such as student loans, back taxes, or child support. The IRS can apply your refund through the Treasury Offset Program (TOP). You can call the TOP hotline at 800-304-3107 to see if this applies to you.
- Talk to a tax professional. If you’re unsure why your refund was reduced or whether your return was filed correctly, a licensed tax preparer or CPA can help review your documents and identify potential issues.
- Consider filing an amended return. Made a mistake on your return or forgot to claim a credit or deduction? You may be able to submit an amended return using IRS Form 1040-X. This won’t necessarily boost your refund, but if you qualify for additional credits, it could help.
Final Take: What To Do If Your Refund Feels Too Small
If your refund feels smaller this year, it could be due to changes in income, credits or your W-4 withholding. Reviewing your tax situation can help you avoid surprises next year — and using tools like the IRS tax estimator or speaking with a tax advisor can give you more control over your refund.
FAQ
Here are the answers to some commonly asked questions about tax refunds.- Where's my refund?
- You can check your refund status using the IRS "Where's My Refund?" tool online or the IRS2Go app. Just enter your SSN, filing status and refund amount for updates.
- What is an IRS offset?
- An IRS offset reduces your tax refund to cover unpaid debts such as federal or state taxes, student loans or child support.
- Can an IRS offset be reversed?
- No, an IRS offset cannot be reversed if it's to pay off a valid debt. However, you can contact the agency you owe if you believe the offset was applied in error.
- Why did I get less back in taxes this year?
- A raise or additional income from a new job can push you into a higher tax bracket. If these changes weren't reflected in your W-4, your employer may not have withheld enough taxes.
- Also, loss or reduction of tax credits may impact how much of a refund you receive.
- Reporting side gig income can impact your refund as well.
- How do I adjust my tax withholdings for a better refund?
- Adjust your withholdings if you have a change in your marital status, have a baby or get a new job.
- Use the IRS tax withholding estimator to determine how much you should withhold. After you get this information, update your W-4 form.
- Will my refund be lower if I change jobs or get a raise?
- Yes, both scenarios impact your refund amount.
- Changing jobs means you may be subject to a different withholding. Make certain you update your W-4 accordingly.
- If you get a raise, it results in an increase in income, and if you fail to adjust your withholdings, you may underpay your taxes during the year.
- Does freelance or side gig income affect my refund?
- Side gig income isn't subject to withholding, so you're responsible for the self-employment and income tax.
Preston Hartwick and Aja McClanahan contributed to the reporting of this article.
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