10 Things You Need to Know About Tax Refunds
Receiving a tax refund can be great news, especially if you’re short on funds or need to make a big purchase in the near future, but sometimes all those numbers can be a lot to try to understand. In order to help you navigate the process, we’ve compiled a list of things you should know about your potential refund.
You will usually get your tax refund within 21 days of filing
According to the IRS, most tax refunds are delivered within 21 days of filing. If you want to know the status of your tax refund, visit IRS.gov and use the “Where’s My Tax Refund?” tool. You can also download the IRS2GO app.
Your refund is not “free money”
Your tax refund is money that you earned, rather than “free money” from Uncle Sam. It’s basically an interest-free loan that you gave to the government.
If you’re getting a huge refund, you may want to tweak your withholding for your 2020 wages by changing your marital status or adding new dependents on your W4. This way, you’ll get to keep more of your hard-earned money throughout the year.
Your tax refund can be used for anything
There are no restrictions on how you use your tax refund. While treating yourself to a vacation or new car may be tempting, try to do your best to use your money wisely. Alternatively, you could consider using your refund to pad your emergency fund, pay off debt or get ahead on your retirement savings.
Your tax refund and tax return are not the same thing
Your tax return is the form you submit to the IRS every year that shows how much income you’ve earned, where the income came from and how much of it you withheld for taxes. Your tax refund is the money the IRS sends you if they review your return and see that you overpaid on last year’s taxes.
Your tax refund may get delayed
There are a number of reasons your tax refund may get delayed. If you filed an incomplete tax return or if your return contains errors, you may not receive your refund within the typical 21-day window.
You can get your refund quickly via direct deposit
If you’d like to get your tax refund as soon as possible, it’s a good idea to sign up for direct deposit. To do so, select direct deposit as your refund method through your tax software and enter your account number and routing number. If you are filing with an accountant or tax preparation specialist, tell them you would like your refund directly deposited by supplying them with the same account and routing numbers.
You may be able to increase your tax refund
To increase your 2020 tax refund, there are certain things you can do before 2019 comes to an end. Donating to a charity, contributing more money to your retirement accounts, spending your Flexible Spending Account (FSA) and deferring any work bonuses to January can each increase your potential refund.
Your tax refund may be less than you expected
If there were math errors on your return, your tax refund may be less than you expected. Also, if you owe back taxes to the IRS, are past-due on child support payments or have delinquent student loans, you may receive a smaller refund than you initially expected.
Your federal refund is different than your state refund
Your federal refund comes from the IRS, while your state refund will come from your state tax department. If you’re getting a federal and state refund, you can expect to get two separate refunds.
E-filing your tax return can speed up the refund process
Electronic filing, or e-filing, is the process of submitting your tax return online through tax preparation software. Not only is this the fastest and safest way to submit your return, it can also help you get your refund a little faster.
If you have any questions related to your taxes or tax return, consult a tax preparer. They can answer any questions you may have and help you get your return quickly.
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