4 Reasons Your Tax Refund Was Lower Than Expected This Year

Figuring out why your tax refund was lower than expected is a lot like trying to figure out why your world-famous (well, nearly world-famous) chocolate cake came out of the oven looking as if it had been run over by a truck. It could be due to a multitude of issues, including one simple mistake. Here, we're looking at some of the most common factors that can lead to lower-than-expected refunds.

1. Income changes

A change in your annual income can affect the amount of your expected refund. For example, if your income increased in 2023, it could have pushed you into a higher tax bracket, resulting in a higher tax rate. Unless you plan to pay more taxes, a smaller refund could be an unpleasant surprise.

On the other hand, if your income decreased in 2023, you may not have had enough money withheld from your paychecks. Any time you don't have enough money withheld, you're likely to see a smaller refund (if you receive a refund at all).

Tax tip: Once you realize that your income is about to increase or decrease, make it a point to adjust your withholdings.

2. Life changes

When your life changes, it's easy to forget to do things like adjust a W-4 to reflect those changes. For example, if you got married in 2023 or welcomed a new child to the family, adjusting your W-4 could have helped keep you on track -- especially if you count on a hefty refund each year.

By the same token, if you were divorced in late 2022 or early 2023, you may have learned the hard way that single filers don't get the same tax breaks as married couples.

Tax tip: Any time you face a significant life change -- whether it's selling a home, getting a divorce, or getting married -- speak with a tax professional about how to minimize the amount of tax you'll owe for the year.

3. Tax law changes

In 2017, the Tax Cuts and Jobs Act (TCJA) increased the standard deduction as follows:

• From $6,500 to $12,000 for individual filers
• From $13,000 to $24,000 for married couples filing jointly or qualifying surviving spouses
• From $9,550 to $18,000 for head of household

What's more, the amount is indexed annually for inflation. The standard deduction for the 2023 tax year is:

• $13,850 for individual filers.
• $27,700 for married couples filing jointly or qualifying surviving spouses
• $20,800 for head of household

At the same time, the TCJA restricted many itemized deductions. If one of the reasons you're accustomed to a large refund check hitting your checking account each year is that you usually itemize but didn't have enough eligible expenses in 2023 to justify doing so, your refund is likely to be smaller.

Tax tip: If itemizing deductions on your tax return is important to you (and your bottom line), keep careful records. The last thing you want after you've gone to the trouble of itemizing is an IRS audit.

4. Simple errors

When a taxpayer finds a letter from the IRS in their mailbox, it tends to be a harmless notification that there is a small mistake on their tax return. Sometimes, the mistake works out in the taxpayer's favor, but more often than not, it benefits the government. And even a small mistake can dramatically alter the refund amount you receive. Before filing your return, take the following steps to reduce mistakes:

• Double-check the amount of income you reported
• Ensure that you've claimed all the deductions and credits you're entitled to
• Make sure you (and your spouse if you're filing jointly) have both signed the return
• Check your math
• Make sure all necessary tax forms and documentation have been attached to the return

Finally, unless you're filing electronically, double-check the address of the IRS office and remember to add a stamp to the envelope.

Tax tip: There's no reason to panic when the IRS contacts you. Even if you owe money, the IRS is surprisingly easy to work with.

As nice as it may feel to receive a tax refund, there's an argument to be made for not receiving a refund. After all, if you don't receive a refund (or your refund is very small), you keep more of your hard-earned money throughout the year rather than giving the government an interest-free loan. That's money you could have used to build an emergency savings account, invest for retirement, or pay down debt -- all three pretty great options.