Tax Refunds Explained
A tax refund or rebate is an instance in which a taxpayer is reimbursed for an overpayment in tax to the state or federal government. Although this may seem like a lucky bonus, it’s more accurately an interest-free loan that the taxpayer gave to the government. In most cases, overpaying on your taxes is avoidable, so long as your W-4 is accurately filled out with current information. Should you require a tax return, there are many companies available to help you out, including TaxRefundsRUs.
Understanding Tax Refunds
Although a tax refund can’t be considered extra money, a large tax refund can still be very exciting. Despite this, taxpayers are better off by not overpaying on their taxes at all, as the money could be put to better use initially.
You might be entitled to a tax refund if:
- You’re eligible for refundable tax credits
- You’re a freelancer or self-employed and file quarterly estimated taxes
- You’ve not updated your W-4 to reflect your changing circumstances
- You’ve filled out your W-4 to have a higher withholding
- You’ve made an error in filling out your W-4
Refundable Tax Credits
The majority of tax credits are non-refundable, which means the tax credit can only decrease a taxpayer’s liability to zero dollars. Any outstanding figure from a non-refundable tax credit is inevitably surrendered by the taxpayer. Consequently, this can be referred to as “wastable” tax credit.
On the other hand, a refundable tax credit pays out entirely, resulting in the taxpayer being granted the full credit; their liability or income tax is irrelevant to this. In the instance that the tax credit decreases the tax liability to under zero dollars, the taxpayer is then entitled to a refundable. There are a handful of refundable tax credits, including premium tax credit, American opportunity tax credit, earned income tax credit, and child tax credit.
How a Tax Refund Works
Tax refunds will typically be distributed as direct deposits into the taxpayer’s account or through the mail. The quickest means of obtaining a refund is to e-file your tax return and opt for a direct deposit.
Although the majority of refunds will be administered within a few weeks of filing your tax return, there will inevitably be instances in which your returns take longer. For instance, when claiming the EITC, taxpayers will be unable to receive their refund until March rolls around.
When Can I Expect a Tax Refund?
According to the Internal Revenue Service (IRS), the majority of refunds will be issued within three weeks. Despite this, COVID-19 has led to severe delays, meaning that it could end up taking a lot longer.
Why Do People Get Tax Refunds?
Taxpayers are entitled to a refund on their taxes in the instance that they overpaid on their taxes the previous year. This can occur in a handful of occasions, including if your employer withholds too much from your salary, or if you’re self employed and have overestimated your quarterly taxes.
How to Check Whether You’re Due a Tax Refund
You shouldn’t have to manually check whether you’re due a tax refund. Instead, your governing body should be able to identify this and automatically inform you of your overpayment. Despite this, they’re only able to make calculations based on information that they’ve been provided with, meaning that it’s your responsibility to guarantee that you’ve given them the correct information to work with.
In a time that the cost of living is constantly rising, no one wants to overpay on their tax. Therefore, you should be doing all that you can to ensure that you’re paying the correct amount of tax month on month.
