What Your Tax Refund Can Tell You About Withholding

By Amanda Emerdinger · Reviewed October 27, 2026

A tax refund can feel like a welcome bit of breathing room. Maybe it goes toward a family trip, a credit card balance, or the savings account you have been meaning to build.

There is nothing wrong with being glad to receive it. But before we use last year’s refund as the goal for next year, it helps to understand what created it.

Where did the refund come from?

You may have heard that a refund means you gave the IRS an interest-free loan. That can describe money withheld from your pay beyond what you ultimately owed. It does not describe every refund.

Refundable tax credits can also contribute to a refund, including when someone owes no federal income tax. A refund may come from excess withholding, refundable credits, or a combination.

That distinction matters. Reducing your withholding will not necessarily turn the full amount of last year’s refund into extra take-home pay.

What would work better for your household?

If withholding was higher than needed, adjusting it may leave more money in your paychecks during the year. Some people would rather have that money available for monthly expenses. Others prefer a cushion at filing time.

My starting point is your actual household budget. Would a little more room each payday help? Would a smaller refund create stress? Has anything changed since that return was filed?

There is no prize for the biggest refund, and you do not need to feel embarrassed about wanting one. The useful question is whether your approach is working for you.

Use the refund as a starting point

Bring your last return and current paystubs to our next conversation. I can help you understand the refund before we decide whether anything needs to change.

Knowing why the number landed where it did gives us a better starting point for the road ahead.