Many Americans Will Overpay the IRS This Year (Here’s How to Avoid It)
For millions of Americans, a big tax refund feels like a win. It’s like a badge of honor saying you “did taxes right.” Although a large refund may feel like a bonus, it’s actually proof that you overpaid all year long.
The average refund in 2025 was around $3,000, which means most Americans likely overpaid. Christopher Stroup, CFP and owner of Silicon Beach Financial, explained how to stop overpaying. Keep reading to get his advice.
As tax season approaches, changes in filing rules, credits and IRS processes are reshaping how refunds and liabilities work—especially for entrepreneurs and dual-income households. Yet many people are still relying on outdated assumptions that cost them thousands. Here’s how you can protect your income with smarter tax planning.
Why People Overpay the IRS
The biggest reasons Americans overpay the IRS each year come down to three heavy hitters:
Outdated W-4 forms
Missed deductions
Unclaimed credits
Stroup pointed out that withholding too much is common for dual-income households and anyone with equity compensation or bonuses. Many also forget to deduct retirement contributions or health savings account (HSA) money, which leads to sending far more to the IRS than necessary.
Signs You’re Withholding Too Much
Overpaying the IRS comes down to IRS withholding. If too much money is taken out of your paycheck (or sent in via estimated payments), the IRS holds that cash interest-free until you file your return.
That’s money you could have used to:
Invest
Pay down debt
Reinvest in your business
Build liquidity during uncertain times
There are a few clues to watch for that could indicate you’re sending more to the IRS than necessary, Stroup said: “Oversized refunds, inconsistent paychecks after bonuses and surprisingly low take-home pay.”
If you regularly receive a refund of $1,000 or more, you’re likely overpaying. Another sign is needing to update multiple W-4s when juggling side gigs, freelance income or second jobs.
The Most Common (and Costly) Tax Mistakes
Old Withholding Settings
Life changes fast: promotions, bonuses, side hustles, investments, marriage, kids. Still, many people never update their W-4 after major milestones.
“Most people fill out their W-4 once and never touch it again,” said Carlos Ruiz, founder and principal adviser at Pivot Wealth Advisors. “But that’s a mistake. Adjusting it to reflect your real life, like mortgage interest, student loans or charitable donations can shrink your refund and boost your take-home pay.”
Missing Tax Deductions
Many Americans leave money on the table by overlooking tax deductions tied to:
Home offices
Business expenses
Professional education
Health savings accounts (HSAs)
Retirement contributions
Without planning, these opportunities go unused.
Not Leveraging Tax Credits
Unlike deductions, tax credits reduce your tax bill dollar-for-dollar. Yet credits for energy upgrades, education expenses, child care and dependent care are frequently misunderstood or misapplied—especially as rules change year to year.
The Bottom Line
We know, it feels good to get that big tax refund deposit. But think of it this way: If you got $3,000 back, you essentially loaned the IRS $250 every month for free.
That means you lived on $250 less per month than you actually earned all year. That extra cash could’ve lowered your debt, boosted savings or helped with everyday expenses as prices rise.
Before next tax season, take these four steps to keep more of your money:
Review your most recent tax return. If your refund was $1,000 or more, you’re likely withholding too much.
Update your W-4 form after life changes like a raise, bonus, side income, marriage or children.
Double-check deductions and credits like retirement contributions, HSAs, business expenses, dependents, education or energy upgrades.
Use the IRS tax withholding estimator to fine-tune your withholding.
The easiest place to start is by going to your HR department or using the online IRS tax withholding estimator.
Now you can keep more money in your pocket where it belongs, not in Uncle Sam’s interest-free wallet.
Featured image by Mehaniq / Shutterstock.com.
