The term 'Tax Refund' is included in the Accounting edition of the Financial Dictionary. Get your copy on Amazon in Kindle, Paperback or Audio edition. Choose your edition here...
A Tax Refund refers to money which the IRS Internal Revenue Service gives back to a tax payer for overpayment of their taxes in a given tax year. For the eight out of ten Americans who receive them most every year, they evoke feelings of wild celebration. The truth of the matter is it simply means that this majority overpaid their income tax out of their payroll tax withholding with their employer throughout the calendar year. This is not a good thing in reality.
Self-employed people will also receive a refund if they have overpaid their estimated taxes. This does not represent free money or additional income when a tax check arrives in the mail or is alternatively direct deposited. Instead, it signifies that the recipient cheerfully agreed to loan Uncle Sam money without charging him any interest for the service.
It is also possible for tax refunds to be issued out of refundable tax credits. This can occur if any money remains from such credits after the taxes due from the federal income have been covered. After the federal government receives and processes all of the return for the tax year in question, it must formally sign off on a refund before the money will be dispatched.
The amount of time that this requires varies according to the means which individuals employ in filing their taxes. Electronically filed taxes-refund processing times are usually sent in under 21 days from the Internal Revenue Service accepting the return. It is possible for delays to hinder this by as much as 12 weeks, though it is highly unlikely that this would happen. Paper tax returns which are mailed typically take from six to eight weeks to be issued and arrive in the mail in the form of a traditional paper check.
If individuals wait until peak tax return season to file, their refunds will commonly be delayed. Tax preparers at the IRS can and do become overwhelmed as easily as any person at this busy time of the year. After all, the IRS is not guaranteeing the time frame for the refunds to be sent out, only estimating their best guess. This is why those waiting for a tax refund should never wait on such a payout to fund a critical purchase or make a time sensitive payment (on a house, mortgage, or other credit card bill).
For those who do find themselves in desperate straits to receive such a refund though, there are loans against imminent refunds which taxpayers can apply for and receive. Some tax preparers, such as H&R Block, will issue refunds against owed refunds as well, in exchange for a small percentage convenience fee. All delay liabilities then transfer to the tax preparing firm and away from the individual tax filer.
Where electronic tax refunds are concerned, individuals have three choices. They can have the IRS deposit them to a checking account, savings account, or retirement account (such as an IRA). Besides this, one could have the IRS purchase a $5,000 or less Series I savings bond if he or she fancies receiving less than a single measly one percent per year in interest.
People have up to three years from the point of filing to claim their refund. This means that now in 2017, filers could still apply for a refund from the tax year 2014. When the IRS grants an extension for any reason, the deadline for the three years starts at the end of the deadline extension.
The sad news is that sometimes people are not allowed to keep their whole refund. The IRS could make a tragic mistake and overpay a refund. They will get this back eventually one way or the other. Any individuals who owe back payments on child support will also have this seized, as they would for back taxes of overdue student loan bills. It is also possible to get a smaller than expected check. In the event that the remaining money does not show up within two weeks of the incorrect amount, it is always a recommended idea to contact the Internal Revenue Service directly.