A tax refund from the IRS basically feels like found money. But it’s not necessarily a smart move!
The average tax refund in 2025 was around $3,000, according to data cited by GOBankingRates. And believe it or not, that’s a red flag. That lump sum was YOUR money, taken out of paychecks through the year and parked with the IRS, interest-free.
The owner of Silicon Beach Financial, Christopher Stroup, says most people don’t realize how easy it is to fix. The biggest culprit is outdated withholding. Many workers fill out a W-4 on their first day at a job and never look at it again. But of course, as taxes change, the form stays frozen. Dual-income households are more prone to overwithholding, as are those who earn bonuses, receive equity compensation like RSUs, or have side gigs. With missed deductions and forgotten tax credits, too much money is sent to the IRS.
Retirement contributions and health savings account (HSA) deductions are another miss. If you don’t factor those in, your taxable income looks higher than it is. The IRS holds that money without interest. Meanwhile, that cash could have been earning returns elsewhere or even been used in your personal expenses. So running a mid-year projection can help.
Tax is not about money entering your account. Tax is about what that money actually is.
If you describe money wrongly, it may look like income, and you pay more tax.
If you describe it correctly, you only pay tax when required… and nothing extra.
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— Festus Ohalete (@ohalete_festus) December 14, 2025
There are a few clues, and the biggest one is large refunds of $1,000 or more. But Stroup also flags inconsistent paychecks and managing multiple W-4s if you have freelance income. If any of that sounds familiar, chances are good you’re overpaying.
The most commonly missed breaks include the saver’s credit, the child and dependent care credit, student loan interest deductions, and HSA or IRA contributions. Housing-related benefits are also blind spots, as renters overlook state-level credits tied to housing costs. At the same time, homeowners miss energy-efficiency credits, mortgage insurance deductions, or points paid during refinancing. Donations through payroll or stock gifts are often forgotten.
What you can do is compare the year-to-date withholding on your paystub with your projected annual income using a tax estimator. Any big gap between what’s being withheld and what you actually owe is a warning. Equity compensation like RSUs and bonuses can push you into a higher tax bracket. While many people rely on their employer’s HR portal, better tools are available. The IRS Tax Withholding Estimator is among the best. Payroll calculators from major HR platforms can help.
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— Paul E Williams (@PEWilliams_) January 29, 2024
Life changes (like marriage, kids, promotions, bonuses, equity compensation, or a new side hustle) should always require a W-4 check. If your pay swings after bonuses or RSU vests, updating mid-year can reduce over-withholding.
A few check-ins a year can help keep taxes predictable!
NEXT UP: “No Tax [to IRS] on Gambling Winnings?” Donald Trump Says He’s Thinking About It
