From Yahoo Finance: 2025-03-29 08:05:00

Many Americans eagerly await tax refunds, but receiving a large one can indicate overpaying the government throughout the year. To avoid this, taxpayers can adjust their financial strategy to keep more money in each paycheck and minimize their tax refund by making accurate estimated payments or adjusting withholdings.

Using the IRS Tax Withholding Estimator can ensure the right amount is withheld from paychecks, preventing overpayment. Adjusting W-4 forms based on life changes such as raises or gig jobs can also help individuals avoid large refunds and keep more money in each paycheck.

Understanding the reasons behind a tax refund is crucial, as it reveals how much has been paid to the IRS throughout the year. Adjusting withholdings for the following year can help prevent overpayment, while one-time situations like credits for electric vehicles may not warrant withholding adjustments.

Incorporating tax-advantaged accounts into withholding strategies can lower taxable income, reducing the risk of overpayment without facing a surprise tax bill. Making accurate estimated tax payments and paying more frequently than required can help avoid underpayment penalties and year-end surprises.

Business owners and retirees can better manage refunds by making accurate estimated tax payments at the right time. A small tax refund is usually the sweet spot, enough to cover surprises but not an indication of overpaying the IRS throughout the year.

Read more: 4 Ways To Minimize Your Tax Refund and Save Money Next Year