A big refund isn't a win

What a refund actually is

Every paycheck, your employer sends part of your pay to the IRS based on the Form W-4 you filled out. When you file, the IRS compares what was sent against what you owe. If you sent more, you get the difference back. That's the refund.

So a $3,000 refund means roughly $250 a month left your paycheck that didn't need to. That's money you could have put toward a credit card at 22%, a car payment, or an emergency fund earning interest. Instead it sat with the Treasury for up to sixteen months, earning you nothing.

We'd rather see a client get a $150 refund and an extra $200 in every paycheck than a $3,000 check in March.

How to fix it on your W-4

You can hand your employer a new W-4 any time of year. The form has five steps, and three of them move the number:

• Step 3, dependents and credits. Enter the child tax credit you expect ($2,200 per qualifying child for 2026) and other credits. This lowers withholding directly.
• Step 4(a), other income. Interest, dividends or a side gig with no withholding. Adding it here raises withholding so you don't owe in April.
• Step 4(b), deductions. Only if you'll itemize or claim deductions beyond the standard deduction. Entering them lowers withholding.
• Step 4(c), extra withholding. A flat dollar amount added to every paycheck. Useful for two-income households, which are the most common source of surprise balances.

The IRS Tax Withholding Estimator on irs.gov walks through the same questions with your most recent pay stub and tells you what to enter. It takes about fifteen minutes. Do it after any raise, new job, marriage, divorce or new baby.

When a refund is the right answer

We don't tell everyone to chase a zero balance. A refund makes sense in two situations:

It comes from refundable credits

The earned income tax credit and the refundable part of the child tax credit (up to $1,700 per child for 2026) can pay out more than you had withheld. That refund isn't overpayment. It's a credit you can only collect by filing.

You know yourself

Some households use the refund as a forced savings plan: new roof, property tax bill, a year's worth of car insurance. If extra money in each paycheck would disappear, a moderate refund is a reasonable choice. Just make it a choice, not an accident.

Owing a little is fine, within limits

The IRS charges an underpayment penalty only when you fall short of certain thresholds during the year. You're generally protected if you owe less than $1,000 at filing, or if your withholding covered at least 90% of this year's tax or 100% of last year's (110% if last year's adjusted gross income was over $150,000). Aim inside those lines and a small balance due in April costs you nothing extra.

If you're self-employed or have big investment income, withholding alone may not do it. Quarterly estimated payments cover the rest.