Sure, it's nice to get a big, fat refund come tax time. But that just means you overpaid your taxes the previous year.

Now Treasury Secretary Scott Bessent is urging Americans to review their tax withholdings to increase their paychecks.

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On April 15, during a White House press briefing about President Donald Trump's tax breaks, Bessent encouraged workers to change the amount of income tax their employer deducts from each paycheck, if they haven't done so already (1).

"If you change your withholding, then you will get an automatic real wage increase ... on a weekly or a monthly basis," he said, adding that "you will be able to keep more of your money this calendar year."

But there's a catch: Changing your withholding requires precision and can be tricky. If you make a mistake, you could end up owing money next tax season.

The One Big Beautiful Bill Act (OBBBA), which was enacted last July, included new tax deductions for the 2025 tax year, including deductions for tax income, overtime earnings and auto loan interest.

For some people, that resulted in a higher-than-usual refund. But that's not the main reason.

Since OBBBA was enacted partway through the year, the IRS didn't update its employer withholding tables (which help employers calculate the amount of federal income tax to deduct from your paycheck).

As a result, many Americans received a higher tax refund this tax season. The average refund is $3,462 (as of April 3), according to IRS data. That's up more than 11% from last year's average refund of $3,116 (2).

Changing your withholding doesn't magically put more money in your wallet. You still owe the same amount of tax. Withholding simply changes how much money your employer withholds from your paycheck to cover your taxes.

If you didn't do so on your 2025 tax return, you have time to make changes for the 2026 tax year. While this could improve your tax situation, you'll also want to be aware of the risks.

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Changing your paycheck withholdings could have "negative consequences," John Nowak, founder of Alo Financial Planning in Mount Prospect, Illinois, told CNBC (3).

If you don't withhold enough throughout the year, then you could end up owing money to the IRS after filing your annual return — which could be an unpleasant surprise if you were expecting a refund.

On top of that, you could end up paying an IRS underpayment penalty if your total withholding doesn't cover at least 90% of the tax shown on your return. Plus, the IRS charges interest on penalties (4).

While there's nothing wrong with overpaying — at least you won't have to worry about underpayment penalties and interest — it does come with an opportunity cost.

Essentially, overpaying is like giving the government a large, interest-free loan, rather than growing your own wealth. It also reduces your take-home pay and gives you less financial flexibility.

For example, with more take-home pay, you could use that money to pay bills, repay debt or build an emergency fund. You could also invest it or set it aside in a high-interest savings account, making that money work for you.

During inflationary times, it may make more sense to have bigger paychecks throughout the year than a big annual refund. If you're overpaying your taxes, by the time you receive that money in 2027, it may have lost some of its purchasing power.

If you received a large tax refund this year, you might be overpaying. On the other hand, if you owe a large tax bill after filing your taxes, then you may not be withholding enough.

You might also want to consider adjusting your withholding "if you've recently had a major life change like marriage, starting a side business or having a baby," according to Experian (5).

Nowak told CNBC that, rather than making "haphazard changes," taxpayers may want to consider using the free IRS tax withholding estimator (6). This tool can help you estimate how much tax your employer should be withholding each year.

If you have a complex financial situation (such as multiple jobs), you may want to consult with a tax expert.

You can change the amount of taxes withheld from your paycheck by submitting Form W-4 (7) to your employer. This can be done at any time of the year.

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YouTube (1); Internal Revenue Service (2),(4),(6),(7); CNBC (3); Experian (5)

This article originally appeared on Moneywise.com under the title: Scott Bessent urges Americans to stop letting the IRS hold their cash: 'automatic real wage increase' awaits

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.