If you realized that your tax refund this year is smaller than you thought, you’re not alone. There are several reasons why this could be happening, and while it’s frustrating, we can help you to understand why, which can help you better prepare for next year. Next, we’ll explain what is happening and what you can do about it.
First, if your refund was less than expected, it is best to review the notice the IRS sent you. There they will explain why the amount was adjusted. It may be due to changes in tax credits or because you have outstanding debts that the IRS used to offset. Read that letter carefully to understand the reason.
Why is my tax refund lower this year?
One of the main reasons is that some tax credits, such as the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC), are no longer as generous as they were during the pandemic. Those temporary improvements have expired, so many of us are getting less than we expected. Additionally, if your income has changed, you may no longer qualify for certain credits.
Another thing that may be happening is that the IRS used part of your refund to pay off old debts. This is called “compensation” and it happens if you have back federal or state taxes, unpaid child support, delinquent student loans, or unemployment overpayments. If this is your case, the IRS will let you know how much was deducted and which agency they sent it to.
If you believe there was an error, you can contact the agency listed on the notice to dispute compensation. Also, review your tax return to make sure everything is entered correctly. Sometimes a small mistake can cause the IRS to adjust your refund.
To check the status of your refund, you can use the “Where is my refund?” at IRS.gov/refunds. If it’s been more than 21 days since you filed electronically (or six weeks if you filed by mail), you can call the IRS to ask, but keep in mind that they only investigate after that time.
Looking ahead, to avoid surprises next year, you can adjust your withholding with your employer or set aside a little more money if you think you’ll owe. The IRS Withholding Calculator can help you see if you’re on the right track.
Is DOGE laying off employees from the IRS?
Elon Musk’s Department of Government Efficiency (DOGE) is laying off employees from the Internal Revenue Service (IRS). As part of the Trump administration’s initiative to improve government efficiency and reduce the federal workforce, DOGE has targeted the IRS, leading to the layoffs of thousands of employees.
Reports from mid-February 2025 indicate that these layoffs, particularly affecting tax collection staff, are either ongoing or imminent as of February 27, 2025. This effort aligns with DOGE’s mission to streamline federal agencies, though it has raised concerns about potential disruptions to tax processing and taxpayer services during the busy tax season.