Life changes
Why Your Tax Refund Is Smaller Than Last Year
A refund is the difference between what was taken out of your pay during the year and what you actually owed. When it shrinks, one side of that comparison changed, and it is usually possible to say exactly which.
Reviewed by LaToya Clark-Thompson, FounderLast updated
A refund is not a bonus
It helps to start with what a refund is. Your employer withholds federal and South Carolina income tax from each paycheck based on the Form W-4 you gave them. When you file, the return works out the tax you really owed. If more was withheld than owed, the extra comes back as a refund. If less was withheld, you owe the difference.
So a smaller refund does not always mean you paid more tax. It can mean less was withheld along the way, and you had more in each paycheck instead. The first thing we look at is the "total tax" line on this year’s return next to last year’s. If that number barely moved, the change is on the withholding side.
The most common causes
Withholding went down
A new job, a new W-4, a raise that changed your bracket, or a payroll system update can all change how much comes out of each check. Two jobs at once is a classic trap: each employer withholds as if it were your only job, so together they take out too little.
A child aged out of a credit
The Child Tax Credit only applies while a child is under age 17 at the end of the year. After that, a dependent may still qualify for the smaller credit for other dependents, but the drop is real. The Earned Income Tax Credit has its own age rules, with a higher limit for full-time students. See when your child gets older.
Income with nothing withheld
Freelance work, a side hustle, payment app income reported on a Form 1099-K, unemployment benefits, a retirement distribution on a 1099-R or investment sales all add income. Often nothing was withheld from them, and self-employment income also carries self-employment tax.
Your filing status changed
Moving from head of household to single, or filing separately after a divorce, changes the standard deduction and the brackets. So can a dependent who no longer lives with you.
Credits phased out as income rose
Many credits shrink as income climbs. A good year at work can push you past the point where a credit you counted on starts to phase out.
When the IRS changed the number
Sometimes the return asked for one refund and the deposit was a different amount. That means either the IRS adjusted the return, in which case it mails a notice explaining the change, or part of the refund was applied to a debt. Those are different problems with different fixes: see refund taken for a debt and, for the notice, how to read an IRS letter.
Fixing it for next year
If the cause was withholding, the fix is a new Form W-4 (and the South Carolina SC W-4) with your employer. Our W-4 withholding calculator shows roughly how a change to your W-4 moves your paycheck and your refund. The tax refund calculator gives a ballpark for the coming season. If you are counting on the refund early in the season, see how a refund advance works.
If the cause was self-employment income, quarterly estimated payments keep the balance from piling up at filing time. Either way, adjusting early in the year is easier than catching up in the last few paychecks.
Getting a second look
If you prepared last year’s return yourself and this year’s drop does not make sense, it may be worth checking whether something was missed on either year. Our free prior-year review looks at a return you already filed, and if a credit or deduction was left off, an amended return can often still claim it.
To have us look, bring both years’ returns, every W-2 and 1099, and any IRS letter you received. Upload them through the secure client portal or bring them to the Easley office for tax preparation.
Frequently asked questions
Why is my refund smaller when I made about the same amount?
Usually because less tax was withheld from your pay, a credit you claimed last year no longer applies, or you had extra income with nothing withheld. Compare the total tax line on both returns. If total tax is similar, withholding is the cause. If total tax went up, look for a lost credit, a status change or new income. The refund calculator helps you test each.
Did my refund go down because my child turned 17?
Quite possibly. The Child Tax Credit requires the child to be under age 17 at the end of the tax year. Once they pass that age, you may still claim the credit for other dependents if they qualify as your dependent, but it is a smaller credit. Some families also lose head of household status when a child moves out. When your child gets older covers both.
Should I change my W-4 if my refund was small?
If you would rather have a bigger refund, or if you owed, yes. Adding extra withholding on line 4(c) of Form W-4, or checking the box for two jobs in Step 2, takes more out of each paycheck. Remember to update your SC W-4 for state withholding too. The W-4 withholding calculator shows roughly how a change affects your check.
Can a smaller refund mean my return was done wrong?
Sometimes, though most drops have an ordinary explanation. A return can miss a credit, use the wrong filing status or skip a dependent. If you cannot match the change to something in your life, have someone review it. Our free prior-year review checks a filed return, and an amended return can often still fix an error.
Not the question you had? The full tax FAQ covers more ground, and our client reviews say what the work is actually like.
Related pages
You owe taxes this year
Why you owe, why filing on time matters more than paying in full, and the payment options the IRS offers.
Learn moreYour child is getting older
Why the refund drops when a child ages out of credits, and what still applies.
Learn moreYou started a side hustle
Side income next to a W-2: Schedule C, self-employment tax, expenses and estimated payments.
Learn moreYou changed jobs
Two W-2s, an old 401(k), a bonus and withholding that may not fit anymore.
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