Federal refunds are typically the largest, but the size depends on how much you overpaid during the year

The Internal Revenue Service (IRS) handles federal income tax refunds, and for most people, this is where the biggest refund lives. The average federal refund in recent years has ranged from $2,500 to $3,500, though individual refunds vary widely based on income, withholding, and credits claimed. Your federal refund is calculated from the difference between what your employer withheld from your paychecks and what you actually owed when you file Form 1040.

State and local refunds are almost always smaller than federal refunds because state income tax rates are lower than federal rates. Some states have no income tax at all, which means no state refund is possible. Even in high-tax states like California or New York, the state refund typically runs 15 to 25 percent of the federal amount, though this varies by individual circumstances.

The size of any refund—federal, state, or local—is not about the government being generous. It is about you lending money to the government interest-free throughout the year. A large refund means you overpaid; a small refund or a balance owed means your withholding was closer to accurate.

Key Takeaways

  • Federal refunds are largest because federal tax rates are higher than state and local rates, and the IRS processes refunds for all 50 states.
  • State refunds depend on whether your state has an income tax; nine states have no income tax at all, so residents get no state refund.
  • Your refund size is determined by how much you overpaid during the year, not by tax brackets or income level alone.
  • Local income taxes exist in only a few states and cities, and refunds from them are typically the smallest of the three.
  • Refund size can be increased by claiming all available credits, such as the Earned Income Tax Credit or Child Tax Credit, which reduce what you owe.

How federal refunds compare to state refunds

The federal government collects income tax at rates ranging from 10 percent to 37 percent depending on your tax bracket. State income tax rates range from 0 percent (in states with no income tax) to about 13 percent in the highest-tax states. Because the federal rate is higher, federal withholding is typically higher, which means federal overpayment is usually larger.

States with no income tax include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire and Tennessee tax only dividend and interest income. If you live in one of these states, you will have no state refund, only a federal one.

In states that do tax income, your state refund depends on state withholding, which is separate from federal withholding. Some people adjust their state withholding independently from federal withholding, which can result in a state refund that is larger or smaller than expected. You control this through your W-4 form (federal) and your state equivalent, usually called a state income tax withholding form.

Local income taxes and why they are usually smallest

Only a handful of states allow cities or counties to collect local income tax. The states where this happens are Alabama, Delaware, Indiana, Kentucky, Maryland, Missouri, New Jersey, New York, Ohio, Pennsylvania, and the District of Columbia. Even in these places, not every city or county imposes a local tax.

Local income tax rates are typically 1 to 3 percent, much lower than state or federal rates. Because the rate is low, the overpayment is usually low, and the refund is small. Many people do not notice their local refund because it arrives separately from the federal and state refunds, sometimes weeks or months later.

If you live in a place with local income tax, you will receive a separate refund from the local tax authority—usually your city or county government, not the state. The timeline for local refunds is often slower than federal or state refunds because local tax offices have smaller staffs and process returns in batches.

Tax credits that increase your federal refund

The size of your refund can grow significantly if you claim tax credits you are may have access to to. Unlike deductions, which reduce your taxable income, credits reduce the tax you owe dollar-for-dollar. Some credits are refundable, meaning if the credit is larger than your tax bill, the IRS sends you the difference as a refund.

The Earned Income Tax Credit (EITC) is the largest refundable credit for working people with low to moderate income. In 2024, the maximum EITC was $3,995 for people without children and up to $3,733 for those with one child. If you owe less tax than the credit amount, the IRS refunds the rest. This credit alone can turn a small refund into a large one.

The Child Tax Credit is worth up to $2,000 per child under 17. Part of this credit is refundable—up to $1,700 per child—which means families with children often see larger refunds than they would otherwise. The American Opportunity Tax Credit for education expenses is partially refundable and can add $1,000 to your refund if you have college costs.

Other refundable credits include the Additional Child Tax Credit (for families with very low income) and the Refundable American Opportunity Credit. State and local governments offer their own credits, though these are usually smaller and less commonly refundable than federal credits.

Why your refund size matters less than your withholding accuracy

A large refund feels good, but it represents money you could have used throughout the year instead of lending it to the government. If you receive a refund of $3,000, that means you overpaid by $250 per month on average. That money could have gone into savings, paid down debt, or covered expenses as they came up.

The goal of withholding is to match what you actually owe as closely as possible. If you consistently receive large refunds, you can adjust your W-4 to reduce federal withholding, or adjust your state form to reduce state withholding. This puts more money in your paycheck each week instead of waiting for a refund.

Conversely, if you owe money at tax time, you can increase your withholding to avoid owing again next year. The IRS provides a Tax Withholding Estimator on its website (irs.gov) to help you calculate the right withholding for your situation. Many state tax agencies offer similar tools.

Self-employed and business owners: refunds work differently

If you are self-employed or own a business, you do not have an employer withholding taxes for you. Instead, you make estimated tax payments four times per year to the IRS and your state. Your refund is based on the difference between these payments and what you actually owed.

Self-employed refunds can be large if you made estimated payments that turned out to be higher than necessary, or if you claimed business expenses that reduced your taxable income significantly. However, many self-employed people end up owing money because they underestimated their tax liability or did not make all four quarterly payments.

Business owners can also receive refunds through the Research and Development Tax Credit or other business-specific credits, though these require detailed documentation and often benefit from professional tax preparation.

When your refund takes longer to arrive

Federal refunds typically arrive within 21 days if you file electronically and choose direct deposit. However, certain situations delay refunds: claiming the EITC or Additional Child Tax Credit, reporting self-employment income, amending a prior return, or having errors on your return that the IRS must verify.

State refunds usually arrive within 4 to 8 weeks of filing, though some states are faster. Local refunds can take 8 to 12 weeks or longer because local tax offices process returns manually or in batches. If you file by mail instead of electronically, add 2 to 4 weeks to any timeline.

You can track your federal refund status using the IRS's Where's My Refund? tool on irs.gov. Most states offer a similar tool on their tax agency website. Local tax offices rarely offer online tracking, so you may need to call or visit in person.

Frequently Asked Questions

Can I get a refund from a state that has no income tax?

No. States with no income tax do not collect income tax, so there is no refund to issue. You will only receive a federal refund. If you moved to a no-tax state during the year, you may owe a refund to the state you lived in before the move.

Why is my state refund so much smaller than my federal refund?

State income tax rates are lower than federal rates, so state withholding is lower. Additionally, some states do not allow certain credits that the federal government does, which further reduces state refunds. Your state withholding also depends on what you claimed on your state W-4 form.

If I claim more tax credits, will my refund definitely be larger?

Only if you are may have access to to those credits. Tax credits require you to meet specific conditions—income limits, dependent status, education expenses, or other requirements. Claiming credits you do not may have access to for can result in penalties and interest. Use the IRS website or a tax professional to confirm which credits apply to your situation.

What happens if I overpay estimated taxes as a self-employed person?

The overpayment becomes a refund when you file your tax return. You can also request a refund of overpaid estimated taxes by filing Form 1040-ES with the IRS, though most self-employed people wait and claim the overpayment on their annual return instead.

Does a larger refund mean I paid more taxes?

No. A larger refund means you overpaid taxes during the year, not that you paid more total tax. Two people with the same income and tax bill can have very different refunds depending on how much they overpaid through withholding or estimated payments.