Your tax refund arrived this spring, and there is a strong chance it was significantly bigger than you expected or planned for. The average individual filer received $3,462 as of April 3, 2026, up $346 (about 11%) from $3,116 at the same point in 2025, according to IRS filing season statistics.
That gap between what you owed the federal government and what your employer withheld represents money that sat earning you nothing for months. Treasury Secretary Scott Bessent stood at a White House podium on April 15, 2026, and told millions of American workers to fix that imbalance.
His directive boiled down to lowering the amount your employer withholds from each paycheck so you can pocket the difference right away. For most American taxpayers who earn W-2 income, the details behind this debate could shape next April’s outcome.
Bessent’s withholding pitch promises bigger paychecks, but there are tax risks
Bessent framed the withholding adjustment as a raise you can give yourself without switching jobs, asking for a promotion, or negotiating with your employer. He told viewers to update their W-4 forms so employers would withhold less federal tax from each paycheck, according to CNBC.
The reasoning behind the push rests on a gap created by Trump’s One Big Beautiful Bill Act, which became law in July 2025 and introduced sweeping deductions. New write-offs for tip income, overtime pay, auto loan interest, and seniors reduced individual taxes by an estimated $144 billion for 2025, the Tax Foundation reported.
The IRS never updated the withholding tables that employers use to calculate paycheck deductions, so millions of workers were overtaxed throughout the entire year. The result was an unusually generous refund season, with about 66% of individual returns producing a refund through April 17, 2026, according to IRS data.
That figure rose from roughly 62% at the same point in the prior year, and the IRS updated its estimator on March 12, 2026. Many workers likely have not updated their W-4 forms given the size of refunds this year.
Paycheck withholdings are simply estimates, John Nowak, a certified financial planner and CPA who founded Alo Financial Planning in Mount Prospect, Illinois, told CNBC. Adjusting them without understanding your complete tax picture is a recipe for an unwelcome surprise when you file the following spring, he cautioned.
IRS underpayment penalty makes guessing your withholding amount dangerous
The risk of cutting withholding too aggressively extends well beyond simply owing money to the government when you file your return next spring. If total withholding does not cover at least 90% of your current year’s tax, the IRS can charge an underpayment penalty, according to IRS Topic 306.
Workers can also meet the safe harbor threshold by paying 100% of their prior year’s total liability, or 110% if AGI topped $150,000. The underpayment rate for the quarter starting April 1, 2026, is 6% for overpayments, 6% for underpayments, and 8% for large corporate underpayments, as confirmed by Revenue Ruling 2026-5.
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That rate is compounded daily on each quarter’s shortfall and assessed independently, meaning penalties can stack across all four periods if you fall behind. Douglas Boneparth, a certified financial planner, delivered a sharp warning for workers who might follow Bessent’s advice without verifying their own numbers first.
Bigger paychecks today only help if the underlying tax math actually works out when you file your return next April, he noted. The calculation is far more complex than any blanket adjustment can handle, especially for homeowners navigating deductions and property taxes, Boneparth told Yahoo Finance.
Free IRS withholding estimator helps, but tax experts say it has clear limits
Rather than acting on a political soundbite, several tax professionals point to a free government resource that supports a more careful, informed decision.
The IRS Tax Withholding Estimator generates a pre-filled Form W-4 tailored to your income, filing status, deductions, and eligible credits. The tool was updated on March 12, 2026, to reflect the new deductions and credits introduced by the One Big Beautiful Bill Act, the IRS noted.
The tool works well for simple situations, Joon Um, certified financial planner at Secure Tax and Accounting in Hayward, California, told CNBC.
“If you change your withholding, then you will get an automatic real wage increase… on a weekly or a monthly basis, and you will be able to keep more of your money this calendar year,” Bessent also said, according to CNBC.
The estimator is especially useful for W-2 employees with a single job, predictable income, and no unusual deductions beyond the standard deduction amount, Um explained. For those managing multiple income streams, side businesses, stock-based compensation, or rental properties, the tool can produce results that misrepresent actual tax liability.
How to verify your 2026 withholding without creating a tax problem
Tommy Lucas, a CFP at Moisand Fitzgerald Tamayo in Orlando, Florida, offered a practical shortcut for workers who want to gut-check their withholding. He told CNBC that taxpayers can start by reviewing the total tax figure on line 24 of their completed 2025 Form 1040 return.
That number represents your total federal tax liability for the prior year and serves as a useful baseline for calculating what you owe in 2026.
If your 2026 income and deductions look broadly similar to what you reported last year, your total federal liability should be reasonably comparable. You can divide that 2025 total tax by the number of pay periods in 2026 and compare the result to the federal withholding on your pay stub.
If the withholding figure closely matches that per-period calculation, your current W-4 settings are likely on track for the year ahead. George Dimov, a CPA and founder of Dimov Tax, told Yahoo Finance that most workers completely overlook Step 4(b) on their W-4 form when adjusting paycheck withholding amounts.
Expanded SALT deduction cap adds complexity for homeowners in 2026
The One Big Beautiful Bill raised the state and local tax deduction cap from $10,000 to $40,000 in 2025, with a 1% inflation adjustment to $40,400 for 2026, the IRS confirmed. The benefit begins to phase out at $505,000 in modified adjusted gross income, creating a threshold that higher-earning homeowners need to monitor carefully.
For homeowners in high-tax states such as New Jersey, New York, and California, that 4x increase could reshape the financial sense of itemizing their deductions. For many taxpayers whose financial situations have not materially changed, Lucas noted that the 2026 tax year will look very similar to 2025 at the federal level.
One notable exception is a new charitable deduction of up to $1,000 for single filers and $2,000 for joint filers who take the standard deduction, Lucas told CNBC.
Related: Scott Bessent has an urgent message for all Americans
