Getting a tax refund can feel like a bonus, but it’s actually money you overpaid to the government. Many people look forward to a big refund, but it’s important to understand why it happens. In 2025, several factors could lead to a higher tax refund. Changes in income, tax credits, and deductions all play a role. Below are six key reasons why your refund might be bigger this year.
If You Earned the Same or Less Income as Last Year
One reason you might receive a larger tax refund in 2025 is if your income stayed the same or decreased. Tax brackets and deductions adjust for inflation each year, which means you might owe less in taxes.
“Almost everything in the tax code is adjusted for inflation,” says Alex Freund, a financial advisor. If you didn’t earn more in 2025 compared to 2024, you may pay less in taxes and receive a larger refund because the tax brackets and deductions have increased.
If You Contributed More to Retirement Accounts
Increasing your contributions to retirement accounts like a 401(k) or IRA can reduce your taxable income. Since these contributions lower the amount of income you pay taxes on, you might see a bigger refund.
The government encourages people to save for retirement by offering these deductions. If you’re in a 22% tax bracket and put more money into a retirement account, you save about 22 cents for every dollar you contribute. This adds up and can result in a larger refund at tax time.
If You Took Self-Employment Deductions
If you are self-employed or work as an independent contractor, you can deduct business expenses from your taxable income. Expenses like office supplies, internet bills, and travel costs can all be deducted.
If your business had higher expenses in 2025, or if you discovered new deductions, your taxable income would be lower. This can lead to a bigger refund when you file your taxes.
If You Qualify for Tax Credits
Tax credits directly reduce the amount of tax you owe. Some credits can even increase your refund.
For example, if you installed energy-efficient home improvements like solar panels, new furnaces, or energy-efficient appliances, you may qualify for tax credits. There are also credits like the Earned Income Tax Credit (EITC) for lower-income taxpayers and other credits for families.
If You Made Charitable Donations
If you donated money or goods to charity, you may qualify for a tax deduction. This applies whether you give cash or donate items like clothes, furniture, or electronics to organizations like Goodwill.
To claim charitable deductions, you need to itemize your taxes and file a Schedule A form. While not everyone itemizes their deductions, those who do can benefit from lower taxable income, leading to a bigger refund.
If You Lost Money on Stocks
If you invested in the stock market and some of your investments lost value, you may be able to use those losses to lower your taxable income. This is called “tax loss harvesting.”
When you sell stocks at a loss, you can use those losses to offset any gains from other investments. If your losses exceed your gains, you may be able to deduct up to $3,000 from your taxable income, which could increase your refund.
Why a Tax Refund Isn’t Always Good News
While a bigger refund is nice, it might mean that you overpaid in taxes throughout the year.
Freund explains, “A tax refund usually means you withheld too much from your paycheck or paid more in estimated taxes than necessary.” In other words, you gave the government an interest-free loan for several months.
If you adjust your withholdings correctly, you could keep more of your money throughout the year instead of waiting for a refund. However, some people prefer a refund as a form of forced savings. If you plan to use your refund wisely—like investing in a retirement account or a college savings plan—it can still be beneficial.
There are many reasons why your tax refund might be higher in 2025. Changes in income, increased retirement contributions, self-employment deductions, tax credits, charitable donations, and stock losses all play a role. While a bigger refund is great, it’s also important to understand your tax situation. By planning ahead, you can make the most of your money throughout the year, rather than waiting for a lump sum at tax time.
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