Tax Refund

Tax Refund
A tax refund is the money that taxpayers receive when they overpay on the taxes they owe. Tax refunds are provided by the IRS for federal taxes, and individual departments of revenue for state taxes.

What is a Tax Refund?

A tax refund is the money that the IRS and state revenue departments return to taxpayers who overpay on their taxes. This occurs when the money removed from taxpayers’ paychecks—called “withholding tax”—adds up to more than the amount they owe for the year.

How does a Tax Refund work?

Income tax is imposed by federal and state governments. Employees often opt to have these taxes removed directly from their paycheck in the form of withholding tax. The money is collected throughout the year, and sometimes it adds up to more than the taxpayer actually owes.

How do I receive a Tax Refund?

To receive a tax refund, taxpayers file their tax return—which they’re legally required to do—with the IRS. Taxes returns can be filed electronically, by mail, or through a tax professional. If the taxpayer qualifies for a refund, the completed tax return will indicate how much the taxpayer is entitled to receive.

Tax refunds are issued by the IRS and state revenue departments. They can come in the form of a check, direct deposit, or savings bonds that the taxpayer purchases from the government.1 Taxpayers will not receive their full tax return if they owe government debts like unpaid taxes, child support, spousal support, or student loans. If they do, their tax refunds can be seized, or “garnished.”2

When will I receive my Tax Refund?

Tax refunds are issued by the IRS or state agency only after taxpayers have filed their yearly tax return. Because many tax refunds are filed right before the April 15 deadline, their corresponding tax refunds can take longer to process. For a faster tax refund, taxpayers should file early.3

The amount of time it takes to receive an IRS refund also depends on how taxpayers file their tax return. If they file electronically and request direct deposit, the IRS is likely to issue their tax return within 21 days. If they file by mail, it usually takes the IRS six to eight weeks to process the refund.4 In both cases, the process can take longer if a tax return contains errors or is incomplete.5

Taxpayers can check the status of their tax refund by using the IRS’s “Where’s my Refund?” tool.

How much money will I receive in my Tax Refund?

The amount that taxpayers receive for their tax refund largely depends on the amount of money that was withheld from their paychecks. Taxpayers who chose to withhold more are more likely to receive a large IRS refund. Taxpayers who chose to withhold less may receive a small refund, or even owe money at the end of the year. Taxpayers can use an online tax refund calculator to estimate how much they’ll receive.

A tax refund can also be the result of tax credits and deductions. Deductions are payments that can be written off and deducted from a taxpayer’s total tax bill. These include payments like healthcare costs, mortgage interest, charitable contributions, and business expenses.

Tax credits are specific deductions offered by the IRS for different kinds of situations and expenses. These include education tax credits, child tax credits, elderly and disabled tax credits, housing tax credits, and earned income tax credits.6

References

  1. Fox, Eric. (2011, March 10). 5 ways to receive your tax refund. Retrieved from http://www.investopedia.com/financial-edge/0311/the-best-way-to-get-your-tax-refund-this-year.aspx

  2. IRS. (2017, January 24). 2017 Tax season refund frequently asked questions. Retrieved from https://www.irs.gov/refunds/tax-season-refund-frequently-asked-questions

  3. “How to get a tax refund?” IRS. Retrieved from https://www.irs.com/articles/getting-a-tax-refund

  4. Turbo Tax. (2017, January 31). Where’s my tax refund? How to check your refund status. Retrieved from http://blog.turbotax.intuit.com/tax-refunds/wheres-my-tax-refund-how-to-check-your-refund-status-18855/

  5. IRS. (2017, January 24). 2017 Tax season refund frequently asked questions. Retrieved from https://www.irs.gov/refunds/tax-season-refund-frequently-asked-questions

  6. ohwinkle, Jeremy. “What Are Tax Deductions?” Intuit TurboTax Blog. Accessed February 3, 2016. https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Deductions-and-Credits/Video—What-Are-Tax-Deductions-/INF13771.html

Related Terms

Tax Relief
Taxes