17 Apr How can I plan after a large tax refund?

Q. I’m shocked to be getting a larger tax refund this year. I usually break close to even. Do we expect the tax law to stay like this – meaning should I change my withholdings so I do break even? And now with this sudden windfall, I’m planning to expand my emergency fund, which currently gets little interest. How can I find a better place to put the money?
— Holding on to cash

A. These are great questions.

Let’s address both.

The first part of your question is regarding tax changes and if you should make any adjustments so you don’t receive a refund as large next year.
The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, permanently extended the Tax Cuts and Jobs Act (TCJA) tax rates that were set to expire, said Jeanne Kane, a certified financial planner with OneDigital in Boonton.

Before this legislation, we were facing a return to higher pre-2018 rates, she said.

“If your withholding was calibrated for that possibility, you may have been over-withheld,” she said.

The standard deduction increased for 2025 to $15,750 for singles and $31,500 for those married filing a joint tax return. This will increase again in 2026 to $16,100 for singles and $32,200 for those married filing jointly.

“Each year, this inflation adjustment shields more of your income from taxation. If you don’t itemize, this puts more money back in your pocket automatically,” Kane said.

If you’re 65 or older, there’s a brand-new Senior Bonus Deduction — an additional $6,000 per qualifying taxpayer ($12,000 for couples where both are 65+). This is available whether you itemize or take the standard deduction, though it phases out for higher earners, she said.

The phaseout begins at $75,000 modified adjusted gross income for singles and $150,000 for those married filing jointly.

This provision is temporary through 2028, she said.

Then there’s the Child Tax Credit, which permanently increased to $2,200 per qualifying child (up from $2,000),” Jane said.

If you have children who qualify, this extra $200 per child directly increases your refund or reduces what you owe. It phases out for high income earners starting at MAGI of more than $200,000 for singles and $400,000 for those married filing jointly, she said.

Plus, the State and Local Property Tax (SALT) cap was raised from $10,000 to $40,000.

“If you live in a high-tax state like New Jersey or New York and you itemize, this change alone could be worth thousands in additional deductions,” she said.

This provision is in effect through 2029, and high earners will see the benefit phased starting at MAGI or greater than $500,000 for singles or those married filing jointly.

New above-the-line deductions for tips ($25,000) and overtime ($12,500) are now available through 2028. It phases out for high income earners with MAGI greater than $150,000 for singles and $300,000 for those married filing jointly.

“These reduce your adjusted gross income even if you take the standard deduction,” Kane said.

The core tax brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) are now permanent law.

“The sunset that was scheduled for the end of 2025 has been eliminated,” Kane said. “You can expect similar treatment going forward — this isn’t a one-year anomaly.”

The standard deduction will continue adjusting annually for inflation, so the benefit persists and grows modestly over time,” she said.

As noted, some of the provisions are temporary unless Congress decides to extend them.

So should you adjust your withholdings?

“I’m not a fan of loaning the government money and then getting a large tax return,” Kane said. “I could enjoy those funds throughout the year and put them into savings or investments. I’d rather earn the interest and growth than the government.”

That said, be aware the OBBBA was signed into law on July 4th, 2025 and included retroactive tax cuts, she said. As the IRS did not update withholding tables for 2025, your employer’s payroll systems may have continued to use the prior (higher) withholding rates for the 2025 tax year, Kane said.

“Your employer’s payroll systems should now reflect the updated tax tables due to the OBBBA changes and, consequently, you may not need to make an adjustment if you typically do not receive a refund,” she said.

If you determine an adjustment makes sense in your situation, file a new W-4 with your employer. By adjusting your withholding allowances, you can fine-tune how much federal tax comes out of each paycheck, she said.

Now to your savings question.

Kane said you should target three to six months of essential expenses, including housing, utilities, food, insurance and minimum debt payments. If you’re self-employed, are a single income household or work in a volatile industry, consider six to nine months of expenses.

“This provides a buffer should you lose your job or have a major expense,” she said.

As for where to put it, liquid is better, Kane said. This means that you can easily access it should you need to without penalties or restrictions.

“Options such as money market accounts and high yield savings accounts are great options,” she said. “You want this money to be invested conservatively but also give you more than you would get from your regular checking or savings accounts.”

For money you may want to invest, Kane recommends a time horizon of five years or more.

“If you need the money in less time, it should be in a conservative place because if the market goes down you won’t have time for it to recover before you need it,” she said.

Consider working with a financial professional for a personalized plan for you.

Email your questions to .

This story was originally published in April 2026. 

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.