Why is My Tax Refund So Low Compared to Prior Years

16 comments

A lot of people have started getting their tax refunds based on the latest IRS schedule. But one question that keeps coming up is why is it so low? Or more precisely why is the refund payment so much lower than expected compared to past years.


Well the reason for this can be attributed to various causes related to your income, tax rate and number of withholdings claimed via your W4. Here is a sampling of scenarios based on actual reader comments that could be causing your refund to be much lower than you expected. If you have encountered a time when your refund was lower than expected feel free to leave a comment describing your scenario and I will assess your situation (no private details like SSN or DOB please).

Scenario 1 (multiple jobs): Mary is a single person and in the past has always gotten a large refund back. However this year, Turbo Tax showed she was due a $400 tax refund. But Mary made way more last year than ever having worked for two different companies. Mary made $15,000 at one job (tax withholding was ~$1200). At her other job she made $14,800 and had a similar withholding amount. So should she have got a larger refund since she made more money?

Answer: The reason Mary is getting a much smaller refund is that her tax withholding was much lower than it should have been since it was likely calculated for each job based on her salary being the annual amount.  That is one employer thinks she earned $15,000 and withheld taxes based on that annualized income. The other place thinks she earned $14,800 and withheld taxes based on that income. But Mary really earned $29,800 for the year and should have had more taxes withheld based on your total income. To fix this going forward she needs to adjust her W4 for the current tax year is she wants to get a larger refund the following year.

Scenario 2 (too few withholdings): I tried several tax software providers and they all come back with a federal refund of only a $95. This is the lowest I have ever got and I made the most money ever this year. I am single, own no property or anything, made around 14,000 last year ($590 federal withholdings). I claimed 2 deductions (withholding) on my paycheck as I have no dependents.

Answer: The answer for your lower refund is your deductions claimed via your W-4. Based on $14,000, your taxable income is around $4,850. Tax on that amount is $495 and with having $590 taking out, you’d get a $95 refund. You must have your deductions higher than 2 if you want more tax taken out so that you can get a higher refund next year.


Scenario 3 (making more money than last year, smaller refund):  Last year my wages were around $30,000 (withheld taxes of $2,240) and state income tax was $1,500. When I entered this info into Tax Act and HR Block to get a free refund estimate before filing, both of them showed my federal refund at $47.  However two years ago I made much less (around $22,000) and my return was almost $2000. What is going on? I am a single filer with no dependents and didn’t claim or get any other credits.

Answer:  The most likely reason for the smaller refund, despite the higher salary is that you are now in a higher tax bracket.  And you likely didn’t adjust your withholdings for the applicable tax year. To understand this you need to realize that your tax refund is determined by your total income, marginal tax rate and the amount of federal/state taxes that are withheld. So since your taxable income was higher you fell into a higher tax bracket that resulted in higher taxes. But you would have got more money on a weekly basis (due to your higher salary) as well – which is better than getting a larger refund in my opinion.

Refund Offset

Another reason why some folks refund is actually less than the amount they were expecting or provided by their e-filing tool is that the federal government has “offset” or deducted monies from your tax refund to cover debts you owe other federal agencies. Under the law, federal payments such as tax refunds can be collected against by approved agencies (e.g the IRS) before being paid to you. You will get  a letter from the IRS explaining this offset to your federal refund and why it differs from what was estimated in your filed return. They will give you an opportunity to dispute this collection, but you will have to prove you had no federal obligations. If you have questions regarding the offset of your refund you can call the Treasury Offset Program (TOP) on 800-304-3107.

At the end of the day getting a smaller refund with a higher income is not actually a bad thing in most cases. It basically means you didn’t give an interest free loan to the IRS (which is what a refund represents). In reality you don’t want a large refund as you should get the money in your paycheck when you earn it. Not a year later.

{ 16 comments… read them below or add one }

MAS April 16

Is any part of Trump’s new Tax “Reform” bill causing refunds being so much lower than previous years? Has it gone into effect for this tax cycle?

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Dan April 10

I’m getting 86 bucks back. Thanks Drumpf.

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Ally March 16

Single, head of household, 1 child dependent. My refund is FIVE. HUNDRED. DOLLARS. I have NEVER received this little in my life. Always been around 2-3,000. My lovely payroll woman at work has claimed it’s due to me filling out 6 exemptions on my W4, however I’ve had those on there since I begun this job in 2016 (Never didn’t fill them out because I’ve always filled them out so I’d get more on my paycheck and STILL received a reasonable refund) and my 2016 taxes were fine, over $2,500 as expected. WHAT is going on?

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Sassy March 15

Last year I got 3600 this year I am paying 1200$ . Insane

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Dave March 14

I always purposely have the most I can taken out of my pay so when I get my refund I can afford a down payment or the like.(I don’t have a place) 2 years ago I was at a company and made about $28000 no deductions. When I did my taxes I only got 1300 combined because I worked a ton of untaxed OT. I have a new job and did the same exact thing and made the same money but all the OT was taxed. Got 700 this time…
I read that it was because I should have paid around 6500 in taxes and I actually paid around 7200…why should I had paid over 22% in taxes.( I got 600 last year and made 8000.) Confusion.

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Beth and Mark March 10

Claim 0 on W4, take an extra $20.00 out….previous years received approximately $2,000 refund. In 2018, refund is $205.00.

Filing married.

Something is not right.

Working very hard and taking out the most possible amount of money and then only get a small amount?

Hmmmm.

Hoping we get a surprise check in the mail from our government to offset.

Hey, we can dream.

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Dirty Bastards February 12

My Gross income was just over 50k and I have given up 1/3 of my income for tax, insurance and various deductibles. I only got $600 back combined fed and state. That is some horse shit IMO. I’m paying honest tax and some lazy bogus fuckers get to enjoy spending other’s hard earned freaking money…. this is the world we are living in….

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Sheila February 12

Hello…Yes I am very upset that my refund is less then half from last year. What is going on? You can’t claim your 17 year old who is in school anymore??? What is this? Please explain as we work hard for our money and need a good refund to fill in the cracks.

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Donzel February 10

I’m seeing $2200 dollar reduction eventhough I earned the same amount as prior year.. None of my deductions or amount of dependents changed.. something is different..

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Julie April 13

This is my exact situation and I can’t find an explanation anywhere. I thought we would not see any changes in 2017 and the change would come in 2018. Now I am scared to see what 2018 will bring!! Maybe no refund or having to pay?!

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Barbara Cline February 7

I just filed my tax’s and I’m only on Social Security and I do get my pension and all I have for a refund is my state and this year is so low,last year I got $224 back on my state refund and this year is only $15 dollars. Talk about nothing ,that is a waste of paper to file it. I hate Trump for this, him and is so called republicans they now are more richer and the low low income citizens just got poorer. I thought this new tax bracket was to help us but it was just to get him more richer and our deficit is higher than any president we had. I just hate Trump.

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K February 3

Having the same issue. Income same as last year as well as deductions. Federal, and resident state refund remains the same, but my nonresident return to a neighboring state is $600 less than last year

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parker February 2

Trump enjoys showering with the taxpayers money and after it touches his orange body it is burned and disposed ofso no Republicans go dictatorship go f*** yourself 20018 20000 billion 19 Trump forever ever ever

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Alivia January 6

Head of household 2 dependents and only made 15625 dollar whole year with 734 fed withholding why is my income tax this year under 3000 and last year it was 8338 dollars and nothing changed?

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Scott McGuire January 4

Wondering why my refund is more than 2000 dollars less this year despite my income being almost exactly as it was last year. $26,500 income, 2 dependents, filing HoH. got 8100 combined last year, this year its saying i will get only 5900 combined. same W-4 as previous year. Can you explain why?

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Sh February 12

I have gotten around $3,600 in the past. This year it’s saying I’m getting $1,000. I also made $6,000 less this year (22k) after my company merged with another. Not sure why the president claims that wages are going up not mine at least. it just sucks when you count on this money and pretty much is stolen from u.

Reply

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