president Donald Trump House Speaker Mike Johnson called the 2025 tax year refunds “historic” and predicted they would be a huge sum for millions of people.
According to the Internal Revenue Service (IRSJohnson revealed last month that the average refund this year for this filing season will be about $4,000, up from $3,167 in 2025, according to the data.
Millions of Americans are expected to get big tax refunds this year thanks to new legislation and huge deductions. However, not everyone sees the huge payout from the IRS.
Large tax refunds are always preferable, but they are never free.
Essentially, the refunds are the government giving Americans back the money they earned over the course of a year through interest-free loans.
Here are 5 reasons why you may receive a smaller tax refund.
Read more: 2026 U.S. Tax Refunds: How to Check IRS Refund Status? Steps to monitor progress
Main reasons why tax refunds may decrease in 2026
IRS Refund to Offset Debt
The refund can be automatically reduced to satisfy certain debts you owe to government agencies or, in the case of a joint return, to satisfy taxes owed by your spouse. This triggers offset notifications.
According to the IRS’s official guidance on Tax Topic 203, a “refund reduction” may occur if part of your refund is offset or redirected to settle certain outstanding bills, including child support, student loans, or federal agency obligations.
The offset notice outlines the amount taken and which agency received it.
Capital gains and asset sales
When you sell a personal asset such as a home or boat, your taxable income increases. Likewise, if you sold certain stocks and cryptocurrencies on the market and received a significant amount of capital from them, this could push you into a higher tax bracket.
If you don’t set aside funds for the expected payment, this will show up as a large gain, resulting in a refund or a reduction in taxes due when you file.
IRS staffing shortage
The Internal Revenue Service is understaffed and overburdened when the 2026 filing season begins, increasing the likelihood of delays and problems for millions of taxpayers, according to an assessment by Treasury Department inspectors.
While this doesn’t exactly mean fewer transaction refunds, delays and service issues could cause delays if returns are processed more slowly because the agency considers returns complex.
Read more: IRS warns people claiming two specific tax credits – what to know
Age Over Child Tax Credit
this child tax Credit remains the main driver of household refunds. However, once a child turns 17 or older, the $2,200 enhanced credit typically drops significantly to about $500 per child.
This change alone can slash your expected tax refund if multiple dependents age out during the tax year.
Higher incomes and a variety of jobs
If you get a raise, a bonus, or start a gig company side hustle in 2025, you’ll move into a higher tax bracket.
If you don’t pay expected taxes or change your W-4 withholding amount, the tax collected by the IRS may be less than what you actually owe. This will reduce your refund or make it a balance due.
Additionally, when taxpayers work more than one job, they often find themselves in a situation where each employer withholds taxes, which becomes the employee’s only source of income.
Therefore, the amount reimbursable at tax time may be reduced due to insufficient total withholding tax across all occupations.
