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Sure, it’s nice to get a big, fat refund come tax season. But that just means you overpaid your taxes the previous year.
Now, Secretary of the Treasury Scott Bessent is urging Americans to review their tax withholdings to increase their paychecks.
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On April 15, during a White House press briefing about President Donald Trump’s tax breaks, Bessent encouraged workers to change the amount of income tax their employer deducts from each paycheck, if they haven’t done so already (1).
“If you change your withholding, then you will get an automatic real wage increase … on a weekly or a monthly basis,” he said, adding that “you will be able to keep more of your money this calendar year.”
But there’s a catch: Changing your withholding requires precision and can be tricky. If you make a mistake, you could end up owing money next tax season.
Here’s how withholding works — and how to make sure you don’t get burned by it.
How tax withholding works
The One Big Beautiful Bill Act (OBBBA), which was enacted in July 2025, brought with it new tax deductions for the 2025 tax year, including deductions for tax income, overtime earnings and auto loan interest.
For some people, this could have resulted in a higher-than-usual refund. But these deductions aren’t the main reason why these people saw more returns from the IRS. It actually has to do with timing.
Since OBBBA was enacted partway through the year, the IRS didn’t update its employer withholding tables (which help employers calculate the amount of federal income tax to deduct from your paycheck). As a result, many Americans received larger tax refunds this tax season. The average refund is $3,275 (as of April 17), according to IRS data (2). That’s up more than 11% from last year’s average refund of $3,116.
However, it’s worth noting that changing your withholding doesn’t magically put more money in your wallet. You still owe the same amount of tax. Withholding simply changes how much money your employer withholds from your paycheck to cover your taxes.
So, if you didn’t do so on your 2025 tax return, you still have time to make changes for the 2026 tax year. While this could improve your tax situation, you’ll also want to be aware of the risks.
Read More: Robert Kiyosaki warned of a ‘Greater Depression’ — with millions of Americans going poor. Was he right?
To withhold or not to withhold
Changing your paycheck withholdings is not so straightforward. In fact, it could have “negative consequences,” John Nowak, founder of Alo Financial Planning in Mount Prospect, Ill., told CNBC (3).
That’s because if you don’t withhold enough throughout the year, then you could end up owing money to the IRS after filing your annual return — which could be an unpleasant surprise if you were expecting a refund.
On top of that, you could end up paying an IRS underpayment penalty if your total withholding doesn’t cover at least 90% of the tax shown on your return — and the IRS charges interest on penalties (4).
While there’s nothing wrong with overpaying — at least you won’t have to worry about underpayment penalties and interest — it does come with an opportunity cost.
Essentially, overpaying is like giving the government a large, interest-free loan, rather than growing your own wealth. It also reduces your take-home pay and gives you less financial flexibility.
For example, with more take-home pay, you could use that money to pay bills, repay debt or build an emergency fund. You could also invest it or set it aside in a high-interest savings account, making that money work for you.
During inflationary times, it may make more sense to have bigger paychecks throughout the year than a big annual refund. If you’re overpaying your taxes, by the time you receive that money in 2027, it may have lost some of its purchasing power.
That isn’t a hypothetical concern, either. Consumer prices have risen 3.3% year-over-year as of March 2026 (5), while the cost of gas per gallon has surged by $1.20 since the start of the U.S. war with Iran (6).
Still, being too aggressive with your withholding could backfire — underpaying taxes can trigger penalties when filing season rolls around. That’s why getting a financial advisor can help you strike the right balance, so you can trust that you’re not giving the IRS an interest-free loan, while also not risking penalties for paying too little.
Finding a reputed financial advisor near you is now easier than ever with Advisor.com.
Advisor.com does the heavy lifting for you, vetting advisors based on track record, client ratios and regulatory background. Plus, their network comprises fiduciaries, who are legally required to act in your best interests.
Just enter a few details about your finances and goals, and Advisor.com’s AI-powered matching tool will connect you with a qualified expert best-suited for your needs based on your unique financial goals and preferences.
Finding the right advisor isn’t always easy — there’s no one-size-fits-all solution. That’s why Advisor.com lets you set up a free initial consultation, with no obligation to hire, to see if they’re the right fit for you.
How to adjust your withholding
Even with the help of a financial advisor, finding the balance is tricky. If you have received a large tax refund this year, you might be overpaying. On the other hand, if you owe a large tax bill after filing your taxes, then you may not be withholding enough.
You might also want to consider adjusting your withholding, especially “if you’ve recently had a major life change like marriage, starting a side business or having a baby,” advises Experian (7).
The key is to be steady, not reactive. For example, Nowak told CNBC that rather than making “haphazard changes (3),” taxpayers may want to consider using tools like the free IRS Tax Withholding Estimator (8). This tool can help you estimate how much tax your employer should be withholding each year.
Another smart move may be to take full advantage of tax-advantaged accounts. These accounts are designed to help investors grow their money more efficiently by either reducing their taxable income today or deferring taxes until later in retirement.
For example, retirement plans like 401(k)s and traditional IRAs allow you to contribute pre-tax income, which can lower your current tax bill while your investments can grow tax-deferred. Over time, that tax efficiency can make a meaningful difference.
For seasoned investors with portfolios of $50K or more, you might consider diversifying your nest egg through a flat-fee self-directed retirement account.
A self-directed retirement account is a tax-advantaged IRA that lets investors allocate funds to a significantly broader range of alternative assets than typical IRAs that are offered by banks or brokerage firms.
While traditional IRAs limit options to stocks, bonds and mutual funds, a self-directed account allows you to invest in real estate, cryptocurrency, private businesses, precious metals and private lending.
With IRA Financial, you can work directly with experienced retirement specialists. If you prefer making your investments online, their platform and mobile app make it easy to manage your account. They also have an in-house tax team to ensure your investments stay fully compliant with IRS rules.
With over $5 billion in retirement assets under custody, guaranteed IRA audit protection, 25,000+ clients nationwide and a 97% client retention rate, IRA Financial can help you grow your retirement fund with alternative assets.
Simply answer a few questions — including the kinds of assets you would like to invest in and how much you’d like to start with — to prequalify for an account in just 90 seconds.
Diversify with alternative assets
A self-directed retirement account is a great way to start your investment journey. A gold IRA is another option for building up your retirement fund with an inflation-hedging asset.
That’s because during periods of rising prices, precious metals like gold have historically held their value better than many paper assets, making them a potential hedge against declining purchasing power. Gold IRA contributions are also typically made with pre-tax dollars, meaning your tax liability for the year is lower.
Opening a gold IRA with the help of Goldco allows you to invest in gold and other precious metals in physical forms while at the same time providing the significant tax advantages of an IRA.
With a minimum purchase of $10,000, Goldco offers free shipping and access to a library of retirement resources. Plus, the company will match up to 10% of qualified purchases in free silver.
If you’re curious whether this is the right investment to diversify your portfolio, you can download your free gold and silver information guide today.
Another strategy many often use to manage their tax burden is investing in assets that come with built-in tax advantages.
Real estate is one of the most common examples because of how favorably the tax code treats property ownership. Tools like bonus depreciation and 1031 exchanges can allow property owners to defer — and sometimes reduce — taxes on gains when profits are reinvested into new properties.
The good news is that you don’t have to take on another mortgage or deal with the hassles of being a landlord in order to benefit from the favorable tax code.
You can tap into this market by investing in shares of vacation homes or rental properties through Arrived.
Backed by world-class investors, including Jeff Bezos, Arrived allows you to invest in shares of vacation and rental properties, earning a passive income stream without the extra work that comes with being a landlord of your own rental property.
Arrived’s specialized 1031 exchange program also helps you navigate the entire exchange process, including property sourcing, qualification and reinvestment — all while you maintain tax deferral benefits.
To get started with Arrived, simply browse through their selection of vetted properties, each picked for their potential appreciation and income generation.
Once you choose a property, you can start investing with as little as $100, potentially earning monthly dividends.
And for a limited time, you can get a 1% match when you open an account with Arrived and add $1,000 or more.
— With files from Vawn Himmelsbach
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Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.
@CSPAN (1); Internal Revenue Service (2), (4), (8); CNBC (3), (5); CBS News (6); Experian (7)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
