Iowa State University Extension and Outreach advised on Apr. 20 that receiving a large tax refund in 2026 may not be as beneficial as it appears for many households. The organization explained that a big refund usually means more taxes were withheld from paychecks throughout the year than necessary, which can limit access to funds for savings or debt payments.
Experts say this issue is important because over withholding can affect families’ monthly budgets, especially when interest rates are high. Carol Huneycutt Ehlers, a health and human sciences educator with Iowa State University Extension and Outreach, said, “People like seeing a big refund check, but it usually means they had less money in their paychecks all year.” Ehlers encourages taxpayers to review their withholding for better balance.
The impact of over withholding extends beyond cash flow. “For families carrying credit card balances or other high interest loans, over withholding can actually make managing finances harder, not easier,” Ehlers said. Large refunds may also influence spending habits; behavioral economics research shows many people treat refunds as extra money rather than using them for long-term goals such as debt reduction or savings, according to Forbes.
Inflation further reduces the value of refunds by the time they are received back at tax time, lowering purchasing power as noted by LegalClarity.org. Still, Ehlers said larger refunds might benefit those with irregular income or difficulty saving since some view over withholding as forced savings. Refundable credits like the Earned Income Tax Credit can also result in bigger refunds than what was paid during the year—especially for low- and moderate-income households—as reported by both the Tax Foundation and LegalClarity.org.
Financial advisors recommend aiming for smaller refunds so families have more control of their earnings throughout the year while avoiding surprises at filing time. Michele Hogrefe, Iowa State University adult program coordinator and VITA volunteer with ISU Extension and Outreach Clay County said: “Being able to offer education along with tax preparation has been one of the most rewarding parts of the Volunteer Income Tax Assistance VITA program.”
ISU Extension and Outreach receives funding through county taxes, state appropriations and federal contributions via cooperative agreements according to its official website. The organization promotes community empowerment by connecting Iowans to university expertise according to its official website. It uses facilities at Iowa State University in Ames along with 100 county offices across Iowa according to its official website, functions as part of Iowa State University according to its official website, employs 870 faculty and staff members according to its official website, and focuses on involving all Iowans in research, education and outreach initiatives according to its official website.
Looking ahead, ISU Extension and Outreach offers free financial education consultations through resources like the Iowa Concern Hotline (800-447-1985) for guidance on adjusting tax withholding or understanding refundable credits.
