Q: I got a large refund on my 2025 tax return this year. Is that a good thing?
A: A refund is generally better than facing a large tax bill, but a large refund is not the ideal outcome either. In most cases, the goal is to avoid both extremes and have your tax payments come as close as possible to your actual tax liability.
Here’s why:
Your refund is based on payments made during the year. Taxes are often paid throughout the year through paycheck withholding and estimated tax payments. When those payments exceed the actual tax shown on your return, the difference is refunded.
A large refund means tax payments during the year exceeded your actual tax liability. In other words, you paid more tax during the year than was ultimately required based on your tax return.
Tax law changes can affect refunds. For some taxpayers, provisions of Donald Trump’s so-called One, Big, Beautiful Bill Act reduced their 2025 tax liability, which may have contributed to larger refunds when their returns were filed.
The goal is usually to be reasonably close. Most taxpayers are best served by avoiding a large refund or a large balance due. The closer payments are to your actual tax liability, the more control you have over your cash flow during the year.
The bottom line: If you got a large refund for 2025 and your income, family situation and deductions have not changed significantly, it may be worth reviewing your withholding or estimated tax payments. A modest adjustment could increase your take-home pay throughout the year while still helping you avoid an unpleasant surprise at tax time.
Send questions about your taxes to Vincent Hicks, a CPA based in Cambridge who has more than 20 years of experience, at vincent@hickscpasolutions.com. You can call Hicks at (859) 553-0788.
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