Why Did I Get a Big Refund—or Owe a Penalty? How to Fix Your Tax Withholding

Why Did I Get a Big Refund—or Owe a Penalty? How to Fix Your tax withholding is one of the most common questions I hear this time of year is: “I just received a large tax refund (or owed more than expected)—how do I avoid this next year?”

In simple terms, both scenarios point to a mismatch between what was paid in taxes throughout the year and what was actually owed.

Large refund? You likely overpaid—essentially giving the IRS an interest-free loan. Tax bill or penalty? You may have underpaid, possibly due to insufficient withholding or uneven income.

How to Adjust Going Forward.

Start by reviewing your most recent return and current income.

Then: Update your W-4 (for employees): Adjust your withholding to better reflect your income, deductions, and credits. The Internal Revenue Service Tax Withholding Estimator can help fine-tune this. Review estimated payments (for self-employed or variable income): If your income fluctuates—common for consultants, business owners, or those with equity compensation—quarterly estimated payments may need to be recalibrated. Account for life changes: Marriage, bonuses, stock compensation, or side income can all shift your tax picture.

Aim for balance: The goal isn’t a big refund or a surprise bill—it’s getting as close to “break-even” as possible while avoiding penalties. If your situation includes variable income, equity compensation, or recent changes, it may be worth a more tailored strategy.

Let’s Make This Work for You.

If you recently had a large refund or unexpected tax bill, it’s a good opportunity to recalibrate your strategy for the year ahead. I work with clients to align withholding and overall tax planning with their broader financial goals.

If you have variable compensation, consider scheduling a complimentary review to explore whether a tailored tax plan makes sense for your situation.

This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.

In Phase Wealth Management and LPL Financial do not provide legal or tax advice. Please consult with your tax or legal advisor regarding your personal situation.