Why You Got a Refund (And Why That Is Not a Win)
The average federal refund runs around $3,000. It arrives in spring, it feels like a windfall, and it is nothing of the kind. A refund is the government returning money you overpaid — an interest-free loan you made without deciding to.
Spread across a year, a $3,000 refund is $115 missing from every bi-weekly paycheck.
How withholding works
Your employer does not know your tax bill. They estimate it from the W-4 you filed and remit that estimate to the IRS each pay period. At filing you compute what you actually owed and settle the difference — refund if they took too much, payment if too little.
The estimate is only as good as the W-4. And most people file one on their first day at a job and never touch it again.
The 2020 redesign changed the mental model
The old W-4 used “allowances” — a number you increased to reduce withholding. That is gone. Since 2020 the form asks directly about your situation:
| Step | What it asks | Effect on withholding |
|---|---|---|
| 1 | Name, address, filing status | Sets the base bracket table |
| 2 | Multiple jobs or a working spouse | Increases withholding |
| 3 | Dependents and credits | Decreases withholding |
| 4a | Other income not from a job | Increases withholding |
| 4b | Deductions beyond the standard | Decreases withholding |
| 4c | Extra amount to withhold per period | Increases withholding |
Step 2 is where things go wrong
This is the most common cause of an unexpected tax bill. Each employer withholds as if their salary is your only income, so each applies the full standard deduction and starts you at the bottom bracket. Two jobs at $40,000 each are withheld as two $40,000 earners, not one $80,000 earner — and an $80,000 income sits in higher brackets.
The same applies to a working spouse filing jointly. If neither W-4 accounts for the other income, the couple is under-withheld and owes at filing.
When to revisit it
Any of these makes your existing W-4 stale: marriage or divorce, a child, a second job, a spouse starting or stopping work, a large raise, significant freelance income, or buying a home if you will now itemise.
A mid-year job change deserves particular attention. Your new employer withholds as though your new salary applied all year, which under-withholds if you earned more earlier, and over-withholds if you earned less.
What to aim for
A small refund or a small payment — within a few hundred dollars either way. That means your withholding tracked reality and you had use of your money throughout the year.
One caution against aiming too precisely at zero: the IRS charges an underpayment penalty if you owe too much. You are protected if you paid at least 90% of this year's liability, or 100% of last year's (110% at higher incomes). Deliberately under-withholding to hold cash is a strategy that can cost you.
Adjusting it
Estimate your full-year tax, compare against your year-to-date withholding scaled to the full year, and close the gap using Step 4c — a flat extra amount per period — which is the most direct lever the form offers.
For a rough target, this calculator gives you expected annual federal, state, and FICA at your wage. At $30/hr in Ohio, for example, total annual tax comes to $11,081 — federal $5,308, state $1,000, FICA $4,774. Compare that against the YTD figures on your stub. The IRS also publishes a Tax Withholding Estimator, which handles credits this calculator does not model.
Related: how to read the YTD columns on your pay stub and why overtime withholding looks punitive.