The Essentials Of Tax Refunds
It's tax season, and whether this is your first year filing a tax return or your 50th, you probably have some questions about your tax refund. We cover the basics in this short and sweet article. It has five sections:
1. What is a tax refund?
Every time you get paid, income tax is withheld from your paycheck based on information you gave you your employer. In most cases, you settle up with Uncle Sam once a year, usually by April 15th. If you paid too much, you get a tax refund. If you underpaid you must pay additional taxes. The average tax refund is around $2,800, so be sure to file your taxes and get yours!
2. How is my refund calculated?
First, determine your tax obligation for the year. This is somewhat complicated and involves determining how much of your income is taxable vs. not, factoring in deductions and credits, and more. The headline is that your obligation is a percentage of your total income. Then compare your obligation to the taxes you've already paid, usually by the withholdings from your paychecks. If you've paid more than your obligation, you get the difference back in the form of a tax refund. If you paid less than your obligation, then you don't get a refund and you have to write a check for the balance due. This work is what is what most people consider "doing their taxes."
3. How do I claim my tax refund?
The only way to get your federal tax refund is to file a tax return. Most Americans use tax software or go to a professional like a CPA. You can also file your taxes by hand, but the IRS is trying to cut down on the paper it has to deal with so paper forms are harder to find these days. If you use software, You enter information about yourself and from the tax information you received in the mail, and the software calculates your refund or balance due then transmits your tax return electronically to the IRS. The IRS processes your return, and you get your tax refund.
4. How does the IRS send me my refund?
When you're doing your taxes online, you usually have two options for receiving your refund - direct deposit or have the IRS mail you a paper check. Direct deposit is much faster and is free, so we recommend it. You can also receive your refund in U.S. Savings Bonds. Some software providers offer pre-paid debit cards, too. We only recommend them if you don't have a bank account because there are almost always fees hidden in the fine print.
5. How long will it take to get my refund?
We have to quote the IRS on this one:
The IRS issues more than 9 out of 10 refunds in less than 21 days. However, it’s possible your tax return may require additional review and take longer. The easiest way to check your refund status is by using our automated tools. Where’s My Refund? has the most up to date information available about your refund. The tool is updated no more than once a day so you don’t need to check more often.
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