Why Is My Tax Return So Low? 5 Common Reasons
Written by
Rudri Bhatt Patel, CFHC™
Edited by
Melanie Grafil, M.A., CHFC™
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If your 2025 tax refund is smaller than you expected here is why: your withholding was more accurate, your income increased, you lost certain tax credits or you had multiple jobs. Find out more about the reasons for the question, “Why is my tax return so low?” and what you can do about it.
Common Reasons Your Tax Refund Is Lower This Year
1. Your Tax Withholding Changed
- An update to your W-4: 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.
- Check your paycheck withholdings: 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.
2. Your Income Increased or Changed
- You received a raise. 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.
- You made a profit from investments. Profits from selling stocks and cryptocurrencies is considered taxable income. If you had significant capital gains, your refund is reduced.
- You received Social Security benefits. 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.
- You earned income from side gigs. 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.
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 Claimed Fewer Credits and Discussions
- You took the standard deduction. Taking the standard deduction and not itemizing deductions could potentially result in a lower tax refund.
- You claimed fewer credits. 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.
- You paid off your mortgage or student loan. 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.
4. Your Dependents or Filing Status Changed
- You had a change in dependents. Having a child or losing a dependent can impact your refund.
- You experienced a life change. 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.
5. Your Refund was Reduced for Debts or Offsets
- 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.
- 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.
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. |
Tax Return vs. Tax Refund — Why the Difference Matters
A tax return is what you file annually with the Internal Revenue Service that reports your income, credits and deductions and what taxes you owe, as well as what taxes were withheld during the year.
A tax refund is money that you receive from the IRS if you paid too much taxes during the year. If you overpaid, then you are owed a refund.
Recent Tax Law Changes That Can Affect Refund Amounts
Wondering what may impact your federal income tax refund? The existing laws are meant to adjust outcomes, not any mistakes you make on your returns.
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: $15,750 -Married Filing Jointly: $31,500 -Head of Household: $23,625 |
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 | Up to $2,200 | Increase in credit may mean a larger refund. |
| Payment app reporting delay | – $600 1099-K rule delayed – $20,000 and 200 transactions threshold applies for 2025 returns |
Less taxes owed for those who use payment apps. |
When a Smaller Tax Refund Isn’t a Bad Thing
A smaller refund doesn’t necessarily mean anything is wrong. It actually means you withheld the right amount of tax during the year. The good news is you actually took home more money with each paycheck. You had more cash for daily expenses and an opportunity to put money in your savings.
A smaller refund also means you struck the right balance in keeping money for yourself and withheld the right amount during the year. The goal isn’t to get the largest refund, but to make sure you don’t owe money to the IRS.
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.
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 accordingly.
- 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. 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. Here’s what you should keep in mind if your refunds feels smaller:
- Your withholding was more more accurate.
- Losing credits or deductions can lower your refund.
- Multiple job changes, changes in marital status and adjustments in dependents can impact your refunds too.
- Investment gains and capital gains could have a hand in lowering your refund.
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.
- Why is my tax refund lower than last year even though my income didn't change?
- Your tax refund may be lower because of the following: you had less taxes withheld from your paycheck, you don't qualify for certain credits or deductions or tax adjustments impacted the amount of your refund.
- Is a smaller refund the same as owing taxes?
- A smaller refund isn't the same as owing taxes. It means that your tax withholding was appropriate. Owing taxes means that you have to make up the difference that you didn't pay during the year.
- Can I fix a low refund during the year?
- You can update your W-4 at work, increase your retirement contributions and plan for tax credits to potentially increase your refund.
- Does getting a bonus affect my tax refund?
- It may impact your refund. However, keep in mind, bonuses are taxed like income similar to your salary. Employers also tend to take more taxes on a bonus. A bonus can result in a larger or smaller refund or owing a little more.
Preston Hartwick and Aja McClanahan contributed to the reporting of this article.
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