2026 Tax Refund May Be Smaller Than Last Year's

Many taxpayers may notice that their refund next spring isn't as large as the refund they received for their 2025 tax return…

​If your refund is smaller, it doesn't necessarily mean you're paying more tax.
 
In fact, for many people, it simply means that the IRS is taking less tax out of each paycheck during the year, leaving more money in your pocket now instead of issuing it back as a refund later.
 
Why the Change?
When Congress passed the One Big Beautiful Bill Act in mid-2025, many of its tax benefits applied to the 2025 tax year, but payroll withholding tables were not immediately updated. As a result, many employers continued withholding federal income tax under the old calculations throughout 2025.
 
That meant many taxpayers had more tax withheld than necessary, resulting in larger refunds when they filed their 2025 returns this year.
 
For the 2026 tax year, however, the IRS updated its withholding tables and Form W-4 to reflect the new law, including the permanent tax rates, larger standard deduction, and other provisions enacted by the legislation.
 
The result?

• Your paycheck may be a little larger throughout the year.
• Less tax may be withheld from each paycheck.
• Your refund could be smaller—or you could even owe a small amount at filing time if your withholding isn't adequate.

 
Neither outcome necessarily means your taxes increased.
 
Other Reasons Refunds May Differ
Several other changes could also affect your refund compared to last year:

• Some taxpayers benefited from new deductions for the 2025 tax year (such as certain deductions related to tips, overtime, qualifying seniors, or vehicle loan interest). Whether these continue to benefit you depends on your individual circumstances each year.
• Changes in income, investment activity, retirement distributions, or withholding elections can all affect the amount of your refund.

 
Remember: A Smaller Refund Isn't Necessarily Bad
Many people view a large refund as a pleasant surprise, but financially it's simply the return of money that was overpaid to the IRS during the year.
 
A refund of $5,000 means you effectively gave the government an interest-free loan. Receiving that money gradually through slightly larger paychecks often puts you in a better cash-flow position throughout the year.
 
What Should You Do?
If you'd like to avoid a surprise at tax time, consider reviewing your withholding before year-end. A quick review can help ensure you're neither having too much nor too little withheld based on your current situation.
 
As always, if you've experienced major life changes this year—such as marriage, divorce, retirement, a new job, significant investment income, or changes to your business income—please let us know. We're happy to help you determine whether any withholding adjustments make sense before year-end.