U.S. taxpayers are seeing higher refunds in 2026, with the White House estimating the average refund is at $3,800 for the 2025 tax year, citing data from The Tax Foundation. That’s up from $3,052 for 2024 and $3,004 for 2023.
While at first glance landing a heftier tax refund seems like a financial windfall for taxpayers, it’s really not. In general, if your tax refund exceeds about $500-to-$1,000, you’re likely overpaying the federal government, instead of the other way around.
Overpaying the government with taxes means more money was withheld from your paychecks or paid through estimated payments than your actual tax liability for the year. “When you file your return, the IRS reconciles what you paid throughout the year and what you owed,” Stephen Weisberg, founder at The W Tax Group, a nationwide tax defense company, told NTD News. “If you paid more than you owed, the government gives you a refund for the amount you overpaid.”
Some tax experts say paying the IRS upfront is a negative financial move.
“I dislike using the word 'refunds,” Jeffrey Schneider, an enrolled agent and tax specialist at SFS Tax & Accounting Service, told NTD News. “The money that taxpayers show on their return is an 'overpayment' as it is their own money. In reality, if one gets a large "refund" (more than $500, Schneider said), they‘re giving the government an interest-free loan.”
Overpaying the Internal Revenue Service is particularly a big problem for older Americans near or in retirement.
“As my clients age, they may be on Social Security or taking IRA distributions,” Schneider said. “Many don’t have any federal or state income tax withheld.”
Consequently, older individuals can be hit with a tax bill at the end of the year or a much lower overpayment. “Outside of the mandatory withholdings on some retirement distributions, taxpayers don’t realize they must compensate for items not withheld from other sources, such as earnings estimates and increased withholdings on IRS W-4 tax forms.”
Here’s How to Balance Your Taxes to Maximum Effect, And Not Overpay Uncle Sam
To correct an overpay issue, taxpayers can adjust their Form W-4 with their employer to have fewer taxes withheld from their pay, or lower their quarterly estimated tax payments if they're self-employed. “The benefit of not getting a refund is that you have more cash flow throughout the year instead of giving the government an interest-free loan,” Weisberg said. “Taxpayers keep more money in their pockets, which they can use for savings, investments, or other expenses.”
When a taxpayer wants a bigger refund, depending on the amount they’re seeking, Schneider advises decreasing withholdings and placing some cash into a separate account. “With most employers utilizing direct deposit, send some to a separate bank account, like the old 'holiday club' accounts,” he said. “If a taxpayer does this all year, they will have a nice tax refund windfall, come year-end.”
Weisberg said it's generally better to level taxes out so you're not significantly overpaying.
“Doing so allows you to keep more of your money throughout the year,” he noted. “That said, it's better to overpay and receive a refund than underpay and not have enough money to pay the taxes owed at filing time.”
That’s because owing more than you can pay results in penalties, interest, and IRS collection activity. “The ideal goal is to get as close to break-even as possible,” Weisberg added.
The views and opinions expressed are those of the interviewees. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. NTD does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. NTD holds no liability for the accuracy or timeliness of the information provided.