As you get ready to file your tax return, you’re likely hearing about tax refunds left and right. “File early, get your refund sooner,” the tax preparers chant.
But who gets tax refunds and how can you find out if you will?
Here’s a closer look at the ins and outs you need to know:
— What is a tax return?
— Will I get a tax refund?
— Who gets a tax refund?
— How can I get a bigger tax refund?
— Where is my tax refund?
— What should I do with my tax refund?
— When will I get a tax refund if I file a tax extension?
What Is a Tax Return?
A tax return consists of the form(s) you file with the government to report your filing status, dependents, income, deductions, credits and tax payments. Its main purpose is to document the amount of tax you owe — or how much the IRS owes you — for a given year.
United States citizens are required to file tax returns once they hit the income thresholds for their filing statuses, which ranges from $12,950 to $27,300 for tax year 2022.
While Form 1040 is the standard document for federal personal income tax returns, you may need to attach other forms and schedules. For example, if you operate as a sole proprietor, you’ll need to file Schedule C.
Additionally, if you receive another document, such as a W-2, Form 1099-NEC or Form 1099-DIV, you’ll need to send it with your Form 1040.
Filing returns can get complicated, but tax software, tax advisors and the IRS website can help you decide which forms and schedules you need.
[Read: What’s My Tax Bracket?]
Will I Get a Tax Refund?
According to a Jan. 11, 2023, Tax Payer Advocate Service news release, “In 2022, about two-thirds of individual taxpayers were entitled to refunds, and the average refund amount was nearly $3,200.”
You’ll likely get a refund if your tax withholdings or estimated payments exceed your tax liability for a tax year.
Going forward, if you’re not sure how much to withhold or pay in estimated taxes, the IRS provides these tools to help you:
— If you receive wages and/or salaries: Use the Tax Withholding Estimator to figure out the amount you should have withheld from each paycheck.
— If you pay estimated taxes: Use the worksheet on Form 1040-ES, Estimated Tax for Individuals to figure out the right amount to pay.
Keep in mind that this year’s refunds for tax year 2022 returns are likely to be smaller because several big tax breaks went away, including stimulus payments, enhanced child tax credit and charitable deduction for those who don’t itemize.
Who Gets a Tax Refund?
The IRS issues refunds when taxpayers overpay into the system, Krystal Pino, certified public accountant and founder of NomadTax, says.
“While payroll withholdings and estimated tax payments are aimed at hitting the nail on the head, there are other factors that sometimes are not considered, like capital losses or other tax deductions, exemptions or credits,” she says.
Additionally, some taxpayers purposely overpay throughout the year to get a bigger refund — they use the system like a savings account.
How Can I Get a Bigger Tax Refund?
“There are multiple ways you can maximize tax refunds,” Stuart Boxenbaum, certified financial planner and president of Statewide Financial, says.
Here are three ways he mentions:
— Setting up consistent tax withholdings based on income or salary.
— Keeping detailed, accurate records of all tax-deductible expenses.
— Making a contribution directly into a retirement account but doing it at the end of the year when there is no adjustment for withholding during the year.
That said, a bigger refund isn’t always better.
“Since a tax refund is a return of the money that you’ve overpaid, maximizing that amount may not be the best strategy,” Pino says. “The old adage that a dollar today is worth more than a dollar tomorrow means that the more of the money you have throughout the year, the more you can use it to invest or save and earn money on your money.”
[Read: How to Get the Biggest Tax Refund This Year.]
Where Is My Tax Refund?
While the IRS says it issues 90% of tax refunds in fewer than 21 days, the turnaround time depends on how you file.
— Paper filing: Filers should receive refunds within six to eight weeks of the date the IRS receives the return.
— Electronic filing: Filers should receive refunds in fewer than three weeks — and even faster if you have your refund directly deposited into a bank account.
Your refund can be delayed, however, if it’s incomplete or requires an in-depth IRS review. But you don’t have to wait and wonder — you can check the status of your refund online or through the IRS2Go app.
[Read: When You Should (and Shouldn’t) Worry if Your Tax Refund Is Delayed.]
What Should I Do With My Tax Refund?
The best way to spend your tax refund depends on your financial situation and priorities.
“While the ideal move for many people appears to be a vacation or splurge of some sort with this newfound money that can feel like a bonus, the savvy move would be to factor it into one’s overall financial plan,” Bryan M. Kuderna, CFP and founder of Kuderna Financial Team, says.
Kuderna recommends a financial strategy that prioritizes protection, building an emergency fund and eliminating high-interest debt. After that, he recommends shifting to a focus on wealth accumulation.
With that in mind, he says, “If the tax refund recipient has all of their insurances in order and paid for, at least six months expenses in cash for a rainy day, credit cards or any high-interest debts paid off, and investment plans already on track … then the reward of a vacation may be in order.”
When Will I Get a Tax Refund if I File an Extension?
The IRS typically processes returns as it received them and prioritizes those for which refunds are due. As long as the IRS doesn’t have to manually review your return and there isn’t a backup in returns processing, it should send your refund according to normal turnaround times.
If you do plan to file your return late, though, keep in mind that you have three years from your original tax due date to claim your refund.
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Tax Refunds: Everything You Need to Know originally appeared on usnews.com
Update 02/24/23: This story was previously published at an earlier date and has been updated with new information.
