So you filed your taxes on time — good job! — and were eagerly awaiting your refund. But when the IRS sent the deposit, there was a problem: The amount's not what you expected.
You aren’t the only one. Because of major tax policy changes last year (including the expanded child tax credit and earned income tax credit, the third stimulus check, the return of taxable unemployment benefits and more), it’s a good bet that many taxpayers will be surprised by the size of their refunds this year — for better or for worse.
As of late March, the IRS had processed nearly 58 million individual refunds totaling $188.7 billion. The average refund so far is worth $3,263 — up 15% compared to the same week last year, though it’s important to remember tax season started several weeks earlier this year than it did in 2021.
Whether you think your refund amount is flat-out wrong or you'd simply prefer to get a different amount next year, there are steps you can take. Here’s what you need to know.
What to do if your tax refund is smaller than expected
There’s a slew of reasons your 2021 tax refund might be smaller than the one you received for 2020. You may have already received some of your child tax credit money as advance payments rather than one lump sum like you usually do, or the IRS could have reduced your refund because you owe back taxes, child support payments, state income taxes or money to another federal agency — just to name a few.
If your smaller-than-expected refund came in the form of a paper check, the IRS says you can go ahead and cash it. If it was sent via direct deposit, you can leave the money in your account.
The most important thing to do is keep your eyes peeled for a notice from the IRS in the mail. The letter will explain the difference between the amount you received and the amount listed on your 1040 and will contain further instructions — make sure you follow them. If the agency determines it sent you too little, you could get another check later.
What to do if your tax refund is bigger than you expected
On the flip side, you might have received a refund that is bigger than the one you expected. It’s possible that the IRS made some corrections on your behalf — maybe your income made you eligible for more stimulus check money you didn’t initially receive, for instance, or you made an error on your taxes when you filed — that would account for the extra money.
Again, you should watch for a letter from the IRS explaining the difference. That letter will contain further instructions for you to follow.
While you’re waiting for the letter, don’t cash your refund if it came in the form of a paper check. If it turns out that you need to return money to the IRS, it’s a lot easier to do so before the money makes it to your bank account. If you received a direct deposit that’s too big, hold off on spending that money. It’s still possible you’ll need to send it back — you’ll just need to ask your bank to return the funds for you.
It’s also possible that the extra money was sent as a result of an error on the part of the IRS. If you think that’s the case, your course of action is a little more complicated and you’ll need to get in touch with the agency directly for further instructions. If you do need to return an erroneous refund, the IRS has detailed instructions about how to do that.
A reminder: it’s possible for interest to accrue on the refund, so don’t wait to return the money if you're supposed to.
If you don’t receive a letter about your refund within a few weeks, or if you think a large amount of money was deposited to your account by mistake, you should go ahead and contact the IRS. You can call the agency’s main toll-free number, which is (800) 829-1040, or call or visit a local Taxpayer Assistance Center.
Withholding can make your refund bigger or smaller
Even if your refund was correct this year, there’s another way you can make sure you get more money next spring. Your employer is required to withhold a portion of your paycheck each month and pay federal, state and city taxes on your behalf through a process called withholding.
The good news is you can tell your employer how much you’d like withheld using the IRS’s Form W-4. The more money your employer withholds from your paycheck, the smaller your tax bill when you file in the spring. If you end up withholding more than you owe, you’ll get a refund from the IRS. That’s good if you want a big refund — but keep in mind that overwithholding means that you are essentially giving the government an interest-free loan with money that you could otherwise save, spend or invest throughout the year.
Asking your employer to withhold less will mean you owe more income tax and reduce the size of your refund. The tradeoff? Your checks will be bigger each payday, and you’ll have more cash on hand.
The IRS has a Tax Withholding Estimator tool you can use to determine the amount of withholding that makes sense for you.
Haven’t filed your taxes yet? Get on it
Don’t wait until the last minute to file your taxes. The IRS is dealing with an enormous backlog of returns, and yours may take longer to process if you're claiming pandemic-related credits. Make sure to be careful and accurate when you fill out your tax forms, since any errors could delay your refund.
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Rates are subject to change. All information provided here is accurate as of the publish date.