Kitchen Table Economics

Why Do We Receive Tax Refunds?

Americans are always in a good mood when they’ve finally finished their taxes and receive their refunds. Many people use this money to pay off loans, save for a vacation, or even go on a long-awaited shopping spree. But what is a tax refund and why do we receive these in the first place?

While tax refunds can be a result of a variety of situations, most people experience tax refunds as a consequence of paying more in taxes than they actually should. You see, the government withholds money from employee paychecks every pay cycle and if this amount surpasses what someone should actually owe, that money is reimbursed via tax returns.

This concept is especially important to note because of changes resulting from the Tax Cuts and Jobs Act—which adjusted withholdings tables so Americans are able to keep more of their own income to begin with. This has caused some tax refunds to be smaller compared to previous years, but as highlighted before, that doesn’t mean you are paying more in taxes.

In fact, reality is quite the opposite. Millions of Americans will be paying less in taxes this year because of the Tax Cuts and Jobs Act. You can learn more about your tax savings by visiting