Getting a Really Big Tax Refund

I will be getting a big tax refund when I file my 2025 tax return.  My refund will be larger than our tax liability. I'm getting back about 60% of the federal taxes withheld for 2025. I'm not happy about that since I try to make our refund as close to $0 as possible, or even owe a small amount.   That money that could have been earning 3-4% instead of earning 0% at the government.

How did I end up with such a big tax refund?

• I started withholding about 110% of last year's tax liability to avoid any penalty since I expected to have about the same taxable income as in 2024.
• One Big Beautiful Bill was passed in July 2025 with significant tax changes.
• Several tax changes retroactive to 2025 were made that affected our tax liability
• Senior Deduction
• SALT Cap increase
• Child Tax Credit increase
• I waited until September 2025 to estimate the effect on 2025 tax liability.
• Estimated 30-50% reduction in federal taxes depending on income
• Began tax loss harvesting in investment to reduce capital gains tax
• Stopped tax withholding for final two months of 2025.

Bottom line:  By the time I realized how much our taxes would be reduced, we had already over withheld significantly.  

I prefer to get a small refund or owe a small amount of tax. For 2026, I've already adjusted our withholding to be 110% of our expected tax liability for 2025 since I expect our income to be about the same as 2025.   If we get a windfall and owe more taxes, there is no penalty for underpayment of tax liability.

No huge tax refund for me in 2027 for the 2026 tax year.

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This is not financial nor tax advice. Please consult a professional advisor.

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