How to Prepare for a Potential Change in Your Tax Refund Size

19 June 2025

Tax season can feel like a light at the end of the tunnel for many of us. After a year of hard work, there’s something oddly satisfying about getting what feels like a little financial “thank you” in the form of a tax refund. But what happens when that refund isn't quite what you expected — or doesn't show up at all?

Yup, changes to your tax refund size can sneak up like a plot twist in your favorite Netflix series. One minute, you're dreaming of that post-tax beach trip; the next, you're wondering where your refund went. But don’t worry — this isn’t a doom-and-gloom article. In fact, it’s all about being empowered, proactive, and smart with your money.

Whether your refund gets smaller or vanishes altogether, here's an actionable guide on how to stay ahead of the game and feel financially confident no matter what.

Why Tax Refund Sizes Might Change

You’re probably thinking: "Why would my refund shrink in the first place?" Totally fair question.

There are several reasons the IRS might adjust what you get back. Here are a few of the big players:

- Changes in tax laws (yes, they happen more often than you think)
- Withholding adjustments (maybe you filled out a new W-4 or switched jobs)
- Inflation adjustments or phase-outs for credits and deductions
- Income increases putting you in a new tax bracket
- Less eligibility for tax credits (like the Child Tax Credit or Earned Income Credit)

Understanding the “why” is step one. Step two? Getting prepared.

1. Shift Your Mindset: Don’t Rely On Your Refund

Let’s be honest — many of us have treated our refund like a mini bonus check. New phone? Check. Vacation fund? You bet. But here's the cold, hard truth: A tax refund isn’t free money. It’s your own money that the government held onto all year.

Would you give a friend $100 each month for safekeeping, only to celebrate when they gave it back a year later? Probably not.

So, treat your refund like what it is — a repayment — and build your budget without expecting it. That way, when you do get one? Bonus!

Quick Tip:

Try adjusting your withholding allowances on your W-4 to get a bigger paycheck throughout the year instead of waiting for a refund. Talk about real-time wins.

2. Get Familiar With Your Tax Situation

Ever feel like taxes are a foreign language with too many acronyms? You’re not alone. But the more you understand your personal tax situation, the better equipped you'll be to handle changes to your refund.

Start by:

- Reviewing last year’s tax return
- Comparing it with your current income and deductions
- Checking for changes in credits you qualified for (like the Child Tax Credit, Earned Income Tax Credit, or education credits)

Ask Yourself:

> “Have I had any big financial changes this year?”

Think: job change, side hustle income, having a baby, getting married, or even buying a house. All of these affect your tax picture.

3. Track Your Withholdings Year-Round

Remember that W-4 form you probably filled out in five minutes during onboarding? Yeah, it actually matters — a lot.

Your W-4 dictates how much tax your employer withholds from each paycheck. If too little is withheld, you could end up owing the IRS (no fun). If too much is withheld, you get a refund — but again, that’s your money being delayed.

What to Do:

- Use the IRS Tax Withholding Estimator (super helpful and easy to use)
- Update your W-4 if you’ve had any financial or life changes
- Re-check your withholdings mid-year — things change more than you think

4. Build a Buffer: Save Like Your Refund's Already Gone

Here’s a thought: What if you saved the amount you expect to receive as a refund, just in case it’s smaller or disappears? Kind of like creating a financial “safety net” under that highwire of uncertainty.

Let’s say your usual refund is $2,000. Start stashing away $100–$150 a month. By the time tax season rolls around, you'll be covered — refund or not.

Bonus Benefit:

You now have an emergency fund or vacation fund, even if the refund comes through. Either way, you win.

5. Watch for New Tax Laws and Credit Changes

You don’t need to read the IRS website every day (unless that’s your thing). But being generally aware of tax laws that impact you can make a huge difference.

For example, during the COVID years, there were major changes to refunds due to stimulus packages and credit expansions. Some of those rolled back, resulting in much smaller refunds.

Stay Informed By:

- Following credible finance blogs (like this one!)
- Watching for IRS announcements during tax season
- Subscribing to tax prep software newsletters — they do a lot of the hard work for you

6. Optimize Your Tax Strategy All Year Long

Here’s the fun part. You don’t have to wait until January to make smart tax moves. The best strategies happen year-round.

Try This:

- Contribute to a Traditional IRA or 401(k): This reduces your taxable income now
- Track deductible expenses if you're self-employed
- Charitable donations: Not only feel-good, but possible deductions
- Medical expenses: Keep receipts if they’re unusually high this year

Little moves throughout the year can add up to a better tax result — and refund — in the spring.

7. Use a Tax Pro or Trusted Software

Feeling overwhelmed? You don’t have to do it alone.

Investing in a tax professional or quality tax software can save you time, stress, and even money. They’re experts at catching deductions and strategies you might miss.

Sure, you’ll spend a little upfront — but peace of mind (and maybe a bigger return) is worth it, right?

8. Rethink How You Use Your Refund

Let’s say you still get a refund. Fantastic! But before you splurge, consider how you can use it to move forward financially.

Here are some solid moves:
- Put it toward high-interest debt
- Boost your emergency fund
- Invest in your retirement account
- Add to an HSA (if you have one)
- Start a “dream fund” for future goals like homeownership or travel

Remember:

Your refund is a powerful tool — use it to build the life you want, not just buy more stuff.

9. Prepare Emotionally for the Change

Money isn’t just math. It’s emotional too.

A smaller refund (or even none at all) can feel disappointing, especially if you were counting on it. It’s okay to feel that. What matters is how you respond.

Stay grounded. You’re not failing. The system might have shifted, but your ability to adapt is your superpower.

> Think of it like surfing: You can’t control the waves, but you can learn to ride them.

10. Start Next Year's Prep… Today

I know what you’re thinking — “I just finished my taxes, and you want me to start again?”

Don’t worry. You don’t need to file anything right now. But small steps now make tax season 10x easier later.

Create a tax folder (physical or digital) labeled with the year. Start tossing in:
- Paystubs
- Receipts from big expenses
- Donation confirmations
- Mileage logs if needed
- 1099s or side gig income records

Come next filing season, you’ll breathe a sigh of relief when you don’t have to hunt everything down.

Final Thoughts: Control What You Can

At the end of the day, a changing tax refund doesn’t have to throw your entire budget or mental state into chaos. Life’s full of financial curveballs, and this is just one of them.

Start small. Stay aware. Be proactive. Those little steps add up to big wins.

And hey, maybe this is the year you finally free yourself from that refund rollercoaster altogether.

You’ve got this.