Most people who work get a refund, but not everyone
About 75 percent of people who file a federal tax return get money back. That does not mean you will. Whether you get a refund depends on one thing: whether you paid more in taxes during the year than you actually owed. If you paid less, you owe the IRS money instead. If you paid exactly what you owed, you break even.
Your employer withholds tax from each paycheck based on a form you fill out called a W-4. The IRS uses that withholding to estimate how much you will owe at the end of the year. If the estimate is too high, you get a refund. If it is too low, you get a bill. The size of your refund (or bill) depends on how far off that estimate was.
Self-employed people, people with investment income, and people with multiple jobs are more likely to owe money instead of getting a refund, because withholding does not happen automatically for them.
Key Takeaways
- You get a refund only if you paid more in taxes during the year than you actually owed when you file.
- Your W-4 form controls how much your employer withholds, and changing it is the main way to adjust whether you get a refund or owe money.
- Self-employed people, people with side income, and people with multiple jobs are more likely to owe money because taxes are not withheld automatically.
- Tax credits like the Earned Income Tax Credit can turn a small tax bill into a refund, even if you did not overpay during the year.
How withholding determines whether you get a refund
When you start a job, you complete a W-4. On it, you tell your employer how many dependents you have and whether you have other income. Your employer uses that information to calculate how much federal income tax to take out of each paycheck. That amount is called withholding.
At the end of the year, you file a tax return. The IRS adds up all the withholding your employer sent in, then calculates what you actually owe based on your real income and deductions. If the withholding is more than what you owe, the difference is your refund. If it is less, you owe the difference.
The W-4 is just an estimate. It cannot account for things like a spouse's income, a second job, or a major life change that happened mid-year. That is why some people end up with a large refund and others end up owing money.
Situations where you are more likely to owe instead of getting a refund
If you are self-employed, the IRS does not withhold anything from your income automatically. You are supposed to send in estimated tax payments four times a year. If you do not send in enough, you will owe money when you file. Many self-employed people end up with a tax bill instead of a refund.
If you have a second job or side income, your W-4 from your main job does not account for the extra money. The withholding from your primary job might not be enough to cover the taxes on all your income combined. You can adjust your W-4 to increase withholding, but many people do not realize they need to.
If you are married and both spouses work, and you both claim the standard withholding, you might collectively underwithhold. The IRS has a calculator on its website to help married couples figure out the right W-4 entries to avoid this.
If you have investment income, rental income, or other passive income, withholding does not happen on that money. You may owe taxes on it when you file, even if your job withholding looks fine.
Tax credits that can create a refund even when you overpaid nothing
Some tax credits are refundable, meaning the IRS will send you money even if you did not pay any taxes during the year. The most common one is the Earned Income Tax Credit (EITC), which goes to people with low to moderate income who work. Depending on your income and family size, the EITC can be worth hundreds or thousands of dollars.
The Child Tax Credit is partially refundable as well. If you have children and your income is below a certain threshold, you may get back more than you paid in.
These credits mean that someone who had no withholding at all—or very little—can still get a refund. That is why some people who are self-employed or have minimal job income still see money come back.
How to predict whether you will get a refund
The most direct way is to look at your most recent pay stub and your last tax return. On your pay stub, find the line that says "Federal Income Tax Withheld" or "FIT". Add up the amounts from all your paychecks for the year so far. Then look at your last return and see roughly what you owed. If you are on track to withhold more than you will owe, you will likely get a refund.
This is rough math, though, because your income might have changed, you might have different deductions this year, or you might have new dependents. A more accurate way is to use the IRS withholding calculator at irs.gov. You enter your income, filing status, and other details, and it tells you whether your current withholding is on track or whether you should adjust your W-4.
If you think you will owe money instead of getting a refund, you can adjust your W-4 now. You do not have to wait until tax time. Changing your W-4 increases or decreases the withholding from your next paycheck onward.
What to do if you want to change your withholding
You can change your W-4 at any time by giving a new form to your employer's payroll department. You do not need permission or a reason. The new withholding takes effect on your next paycheck.
If you want to increase your refund, you can claim fewer dependents or check the box that says you have other income. This tells your employer to withhold more. If you want to reduce your refund (or avoid owing money), you can claim more dependents or uncheck that box. This tells your employer to withhold less.
Be careful with this. If you reduce withholding too much, you could end up owing a large amount at tax time. The IRS withholding calculator can help you find the right balance.
Frequently Asked Questions
Can I get a refund if I did not work all year?
Only if you have a refundable tax credit. If you had no income and no withholding, you will not get a refund just from filing. But if you have children, you may be able to claim the refundable portion of the Child Tax Credit. The EITC also goes to some people with very low income.
Why did I get a smaller refund this year than last year?
Your refund changes if your income changed, your withholding changed, your deductions changed, or your family situation changed. If you got a raise, your withholding might not have increased to match, so you could owe more. If you had a child, you might get a larger refund from the Child Tax Credit. Check your W-4 and your return to see what shifted.
Is it better to get a big refund or owe nothing?
Getting a large refund means you lent the government money interest-free all year. Owing nothing means you kept that money in your pocket and could have invested it. Most people prefer a small refund over owing money, because owing creates stress at tax time. Use the IRS withholding calculator to aim for a refund of a few hundred dollars rather than thousands.
What if I am self-employed and want to avoid owing money?
Send in estimated tax payments four times a year. The IRS website has a worksheet to calculate how much to send. You can also set aside a percentage of each payment you receive and put it in a separate account, then send it to the IRS quarterly. This spreads the tax burden throughout the year instead of creating a surprise bill in April.