If you discovered that your tax refund this year is less than you expected, you are not alone. There are several possible reasons for this, and while it is frustrating, we can help you understand why, allowing you to better prepare for next year. Next, we’ll explain what’s going on and what you can do about it.
First, if your refund was less than expected, review the IRS notice you received. They will explain why the amount was adjusted. It could be due to changes in tax credits or because you have outstanding debts that the IRS previously offset. Read the letter carefully to understand why.
Why is my tax refund lower this year?
One of the primary reasons is that some tax credits, such as the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC), have become less generous since the pandemic.
Those temporary benefits have expired, so many of us are receiving less than we anticipated. Additionally, if your income has changed, you may no longer be eligible for certain credits.
Another possibility is that the IRS used a portion of your refund to repay old debts. This is known as “compensation,” and it occurs when you owe back federal or state taxes, unpaid child support, delinquent student loans, or unemployment overpayments. If this is the case, the IRS will notify you of the amount deducted and the agency to which it was sent.
If you believe there was an error, you can contact the agency listed on the notice to dispute the compensation. Check your tax return to ensure that everything is entered correctly. Sometimes a minor error can cause the IRS to adjust your refund.
To check the status of your refund, go to IRS.gov/refunds and enter “Where is my refund?”. If it’s been more than 21 days since you filed electronically (or six weeks if you filed by mail), you can contact the IRS, but keep in mind that they only investigate after that period.
To avoid surprises next year, you can adjust your withholding with your employer or set aside some extra money if you believe you will owe. The IRS Withholding Calculator can help you determine whether 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. As part of the Trump administration’s initiative to improve government efficiency and reduce the federal workforce, DOGE targeted the IRS, resulting in the layoff of thousands of employees.
According to reports from mid-February 2025, these layoffs, particularly those affecting tax collection staff, are ongoing or imminent as of February 27, 2025. This effort is consistent with DOGE’s mission to streamline federal agencies, but it has raised concerns about potential disruptions to tax processing and taxpayer services during the peak tax season.
