Tax Refunds Are Costing You Money, Treasury Secretary Bessent Warns

Average refund hits $3,275, up 11% year-over-year… 'One Big Beautiful Law' withholding tables not updated in time

Every spring, receiving a tax refund feels like a bonus. But America's Treasury Secretary says that thinking is wrong.

Treasury Secretary Scott Bessent said at an April 15 White House briefing: 'When you adjust your withholding, your real wages automatically rise. You can take home more money every week, every month.' It sounds obvious, but most employees don't understand what it really means.

A refund is simply getting your own money back late

Here's how it works: taxes are automatically withheld from employees' paychecks each month through payroll withholding. At year-end, when actual tax liability is calculated, if you've paid more than you owe, the difference is refunded to you.

In other words, a refund isn't free money. It was always your money to begin with—the government simply held it interest-free for a year before returning it. Had you kept those funds in a savings account, you would have earned interest. You've essentially forfeited that opportunity cost to the government.

Why refunds are unusually large this year

As of April 17, 2026, the average U.S. tax refund stands at $3,275, up 11% from $3,116 the previous year. What's driving the increase?

The culprit is the 'One Big Beautiful Law' passed in July 2025. This legislation introduced new deduction categories for tip income, overtime pay, and auto loan interest. The timing is the problem: the law changed mid-year, and the IRS failed to update employer withholding tables promptly. As a result, many employees overpaid their annual tax obligation, inflating refunds accordingly.

2026 makes the pain especially acute

In normal circumstances, overpayment losses amount to opportunity cost alone. This year is different.

As of March, U.S. consumer inflation stands at 3.3%. Since the Iran conflict, gasoline prices have climbed $1.20 per gallon. The $3,275 refund you receive next spring will buy less than the same $3,275 received today. That's the real cost of leaving your money with the government while inflation erodes its purchasing power.

You can adjust, but don't overdo it

To reduce withholding, simply submit a new W-4 form to your employer. It's wise to first use the free Tax Withholding Estimator available on the IRS website. Have your recent pay stub and last year's tax return handy as you input your information—the tool will calculate your optimal withholding amount.

However, cutting too much backfires. If annual withholding falls below 90% of your actual tax liability, you'll face underpayment penalties and interest. Financial planner John Nowak warns: 'Making adjustments without a plan can result in a tax bomb the following year.' The goal isn't zero refunds, but rather striking a balance—withholding enough to avoid penalties while avoiding unnecessary overpayment.