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Tax refund season usually comes with a little spark of joy — maybe it’s a weekend getaway, finally upgrading your phone, or even paying down debt.
But if you’re already counting on a big check in 2026, it might be worth hitting pause. A handful of changes — from tax law tweaks to shifts in your own income or deductions — could mean your tax refund ends up smaller than you expected. Not exactly the surprise anyone wants.
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The good news? None of this has to catch you off guard.
Here’s what could shrink your 2026 tax refund — and what you can start doing now to stay ahead of it.
The Side Hustle Tax Surprise
“One reason I’m seeing smaller refunds across the board this year that nobody really talks about is the explosion of 1099 income from side gigs, freelance work and platform economy jobs,” said Josh Katz, founder and lead certified public accountant (CPA) at Josh Katz CPA.
He noted that a lot of people picked up extra income streams during the pandemic and never adjusted their W-4 withholding on their main job to account for it.
“They’re driving for Uber on weekends, selling stuff on Etsy, doing freelance consulting, whatever,” Katz added.
That income has zero withholding coming out, so they’re making an extra $15,000 or $20,000 a year and thinking it’s all gravy.
“Then tax time hits and not only is their refund smaller or gone completely, they might actually owe money because they didn’t make estimated payments throughout the year,” according to the CPA.
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The 15.3% Most People Forget About
The bigger issue, said Katz, is that gig income gets hit with self-employment tax on top of regular income tax.
“That’s an extra 15.3% for Social Security and Medicare that W-2 employees don’t see because their employer pays half,” he noted.
So, for example, if you made $20,000 driving for DoorDash and you’re in the 22% tax bracket, you’re looking at owing roughly $7,400 between income tax and self-employment tax.
Pay As You Go — Or Pay More Later
“Most people have no idea that’s coming and they’ve already spent the money,” said Katz.
He advised that what you need to do if you’ve got side income is either bump up your W-4 withholding on your main job to cover the tax on the side work, or make quarterly estimated payments.
“The IRS wants their money throughout the year, not all at once in April. If you wait until you file to pay it all, you’re also getting hit with underpayment penalties which just makes it worse,” according to the CPA.
His advice? Set aside 30% to 35% of any 1099 income in a separate account and don’t touch it.
“Treat it like it’s already gone because at tax time, it will be,” Katz concluded.
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This article originally appeared on GOBankingRates.com: 3 Reasons Your Tax Refund Could Be Smaller in 2026 (and What To Do About It)
