En español | Lots of people complain about taxes, though you'll rarely hear someone complaining about getting a tax refund. But you do hear some misleading things about your refund. Let's put an end to that.
Refunds are a big part of tax season. The Internal Revenue Service (IRS) has processed 124,631,000 tax returns and doled out 92,162,000 refunds this tax season, averaging $2,767 each. Because of the extended tax season — returns are due July 15 instead of April 15, thanks to the coronavirus pandemic — the IRS has received 4.4 percent fewer returns than it did the same time last year. And, while the number of refunds has decreased 11.8 percent since June 2019, the average refund amount is 1.2 percent higher this year than it was last year.
Here are five things you should know about tax refunds.
1. It's OK to get a tax refund
Many financial experts argue that it's never a good idea to get a tax refund. In theory, money that you have today is worth more than money you get next year. Furthermore, when you get a refund, it means you have given Uncle Sam an interest-free loan, which is not something he would do for you. And if you're not making ends meet on your current salary, you can give yourself an immediate raise by having the proper amount withheld each paycheck.
As for lost interest: true. On the average refund of $2,767, you'd forfeit about $15 from interest at a typical savings account yielding 0.55 percent. Everyone can use an extra $15, but it's not as egregious a financial error as it was back when you could get 5 percent or more on a savings account.
In a perfect world, you should have exactly as much withheld from your paycheck as you owe in taxes. On the other hand, let's say that you know yourself, and that you know that if you didn't send the extra money to the IRS, you'd spend it.
If getting a refund is the only way you can save, it may be better to get a refund than not. Just try not to spend your entire refund if you don't have an emergency fund in place to cover unexpected expenses like new tires or a root canal. You can even have some of your refund directed to a savings account, using IRS Form 8888. If getting a refund helps you save, it's a smart move.
2. A tax refund this year doesn't guarantee a refund next year
If you have changed jobs, gotten married, had children or had any extra income this year, you should check and make sure that your employer is withholding enough in taxes. Otherwise, you could get stuck owing taxes or even penalties for not having enough withheld. Start by filling out a new W-4 form, which the IRS has recently revised.
If you need help, use the IRS Tax Withholding Estimator. You'll need last year's tax forms as well as a current pay stub from your employer — and from your spouse's employer, if you're filing a joint return. The estimator will even figure out how much to have withheld if you want a refund next year.
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3. Calling the IRS won't speed up your tax refund
True, confirms the IRS, which gets enough phone calls already. The best way to see when your refund will land is to use the Where's My Refund? tool on IRS.gov or the IRS2Go mobile app. (Yes, there's even an app for that.) You can also use the automated refund hotline at 800-829-1954, which has the same information as the Where's My Refund? tool.
Ordering a tax transcript to find out your refund date faster, a trick some taxpayers have suggested in the past, doesn't work either, according to the IRS.
4. Your tax refund could take longer than you expect
Updates to the Where's My Refund? tool on both IRS.gov and the IRS2Go mobile app are made once a day. It doesn't do anybody any good if you check it 30 times a day. The IRS issues most refunds in less than 21 days, but it's possible your refund will take longer — if the IRS needs more information to process your return, for example. (If that's the case, you'll get a notice from the agency in the mail.) And if you filed a paper tax return, be patient. Due to the coronavirus, processing of paper returns has been slow going. File electronically for a faster refund.
If you expect your refund by direct deposit, you should check to see how long it takes for your bank to post the refund to your account. If you get a paper check, remember that it takes time for the post office to deliver it.
5. Your tax refund could end up being less than expected
Everybody makes mistakes, and sometimes that person is you. If you made math errors, for example, your refund could be smaller than you expected. The same is true if you owe federal taxes from a prior year — or if you owe state taxes, child support, student loans or other delinquent federal nontax obligations.
The IRS will mail you a letter of explanation if these adjustments are made. Some taxpayers may also receive a letter from the Department of the Treasury's Bureau of the Fiscal Service if their refund was reduced to offset certain financial obligations, such as child support.
If you have simply forgotten a deduction or tax credit, you can file an amended return to get your refund. If the IRS has ruled against you in an audit, you can appeal to the IRS Taxpayer Advocate.