Your Tax Refund Information Guide

Your annual tax refund is a major factor in your financial life. How does it work? This page will help you understand the tax refund process. You’ll also learn how to maximize your refund once it is in your pocket. We’ve got the answers, whether you’re expecting to receive a large refund or a smaller one. Here is everything you need to know about tax refunds.

Basics of tax refunds

Tax refunds are the monetary returns you receive from the government, often stemming from overpaid taxes during the year. It’s not as straightforward as a direct refund. Here are seven key factors to consider when assessing your potential tax refund:

Income level:

Your AGI, or adjusted gross income, is a crucial figure in your tax return. Here are seven key factors to consider when assessing your potential tax refund:

Income level:

Your AGI, or adjusted gross income, is a crucial figure in your tax return. Calculated by subtracting specific deductions, it is used to determine your taxable earnings. The more you earn, the more you might owe in taxes, but it also means a potentially larger refund if you’ve overpaid.

1. Filing status: Your filing status can significantly impact your tax liability and tax refund. When you file with us, our tax software will suggest the best filing status for you among five options, helping ensure you receive the most advantageous tax treatment.
2. Deductions and credits: Tax deductions and credits can reduce the taxes you owe or increase your refund. It’s essential to answer all our interview questions accurately to identify the tax breaks available to you.
3. Withholding: Adjusting your withholding through your Form W-4 can have a direct impact on your refund amount.
4. Income sources: Different sources of income, such as investments, can affect your tax liability as well.
5. Standard deduction vs. itemized deductions: You have the option to take the standard deduction or itemize your deductions, depending on which benefits you more. The standard deduction reduces your taxable earnings, whereas itemized deductions can be a bigger deduction for some people. We’ll ask for basic information when you e-file your taxes with TaxAct(r), including your marital status, your children, and any significant events that occurred during the tax year. This information helps us identify potential tax credits and deductions based on your situation.
6. Tax law changes: Keep an eye on changes in tax laws, as they can also influence your tax refund amount.
7. By considering these factors when e-filing your federal income tax return, you can ensure that you’re accurately representing your financial situation and taking advantage of all the available tax benefits. This method simplifies the filing process and could result in a bigger refund. Why did my tax return shrink?Many American tax payers wonder why their tax refunds are smaller some years. You’re not the only one who is wondering why your tax refund was smaller this year. Several factors can contribute to this outcome.
8. Typically, a tax refund is a reimbursement of taxes you overpaid during the tax year, which can result from withholding more taxes than you owe or overestimating self-employment taxes. Additionally, refundable tax credits, such as the Child Tax Credit, can boost your refund when they exceed your tax liability.The primary reasons for smaller tax refunds in 2024 are likely due to:

Changes to your income.

For instance, if you received a salary increase last year but didn’t adjust your tax withholding, you may receive a smaller refund. Or if you earned side income without making estimated tax payments, the IRS may withhold more of your tax refund to cover the additional tax owed.

Economic factors.

Layoffs, inflation, and the stock exchange can all have an impact on your tax situation. The IRS adjusts certain figures for inflation each year, but some tax breaks are not adjusted to account for rising prices. Know your tax credits.

Familiarize yourself about the tax credits that you are eligible for. Tax breaks and rebates may be available throughout the year. Some states also offer additional tax relief or rebates depending on where you reside. E-filing with tax software like TaxAct can help you identify and claim these credits.

1. File early: Filing your tax return early can expedite the refund process, and it gives you more time to plan for and pay any taxes owed.
2. Contribute to retirement plans and HSAs: Contributions to Individual Retirement Accounts (IRAs) and Health Savings Accounts (HSAs) can reduce your taxable income. Make sure to contribute before the tax deadline.

Use investment losses:

1. If you experienced losses from investments, you can use them to offset gains or deduct up to $3,000 in losses from your taxable income.Utilize TaxAct’s Refund Booster1:
2. Make use of tools like our Refund Booster to plan for future tax years and potentially receive a larger tax refund.If you know that your refund may not be as substantial as in previous years, proper planning is essential to manage your finances effectively.
3. In the next section, we’ll delve into estimating your tax refund and how to ensure you receive the maximum amount you’re entitled to.Estimating your tax refund
4. When you plug your numbers into our income tax calculator, we can help you estimate your tax refund amount for the year. Use our income tax calculator to estimate your tax refund amount for the year. This calculator can help you make informed decisions about your tax planning. This estimate can help you make informed decisions about your tax planning.Accurately estimating the taxes you will owe during the year is highly important for several reasons, as it helps individuals, families, and businesses plan for the future and adhere to tax laws. Here are some key reasons why accurate tax estimation is crucial and how this calculator can help you:
5. Budgeting and financial planning: Estimating taxes allows individuals and businesses to create and maintain a realistic budget. Knowing how much tax you will owe helps you plan your finances and ensure that you are able to pay for your obligations. This, in turn, helps maintain overall financial stability.

Avoiding penalties and interest

: Underestimating taxes can lead to penalties and interest charges. If you fail to pay your taxes on time, you may be penalized and charged interest by the IRS or tax authorities. Accurate tax estimation helps you avoid these costly consequences.

Minimizing cash flow issues:

Accurate tax estimation allows businesses to manage their cash flow effectively. When you know how much you’ll owe in taxes, you can plan for tax payments and ensure that your business has enough liquidity to cover those obligations without jeopardizing day-to-day operations.

Preventing tax debt:

1. Inaccurate tax estimation can result in accumulating tax debt, which can be financially burdensome. Tax debt can lead individuals and businesses to take action, such as liens and levies. This can have serious consequences. Accurate estimation can help you prevent or reduce tax debt.Compliance with tax laws:
2. Accurate tax estimation ensures that individuals and businesses are in compliance with tax laws. Failure to pay the correct amount can lead to legal consequences, audits and criminal charges. Accurate estimation demonstrates a commitment to following the law.Strategic tax planning:
3. Accurate estimation also plays a vital role in strategic tax planning. Knowing your tax liability allows you to explore legal ways of minimizing your tax burden. For example, you can take advantage of tax credits, deductions, and incentives. This can lead to significant savings and better financial outcomes.Financial reporting:
4. If you happen to be a business owner, you probably know that businesses are often required to report their estimated taxes on financial statements, which can affect their financial ratios and investor perceptions. Accurate tax estimation enhances the transparency and reliability of financial reporting, which can be crucial if you’re trying to attract investors or secure a loan.Benefits that increase your tax refund
5. It’s good to be aware of various tax savings opportunities that you can take advantage of to ease the process of filing your federal income taxes. These benefits can be based on your family, education and employment. Let’s review some ways you could save this year (and possibly increase your tax refund while you’re at it).Family-related tax benefits:
6. CTC: The Child Tax Credit can provide up to $2,000 per eligible child in 2024, particularly for taxpayers with earned incomes of up to $200,000 for single filers or $400,000 for joint filers.
7. CDCC: Parents who work or attend school and incur childcare expenses may qualify for the Child and Dependent Care Credit, offering a maximum credit of $1,050 for one child and $2,100 for two or more children in 2024.

EITC:

The Earned Income Credit can also be a valuable tax break if you are a working taxpayer with low to moderate income. If your family has three or more qualifying children, you can claim up to $7,830 using this credit in 2024.

Education-related tax breaks:

1. If you’re dealing with student loans, there is an opportunity to deduct up to $2,500 in interest paid during 2024, contingent on your income.Students can also benefit from the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) for educational expenses.
2. If you are contributing to a Coverdell Education Savings Account you can make annual contributions of up to $2,000, which will grow tax-free until withdrawn.Tax benefits for homeowners:
3. As a homeowner, you can utilize tax deductions, such as the mortgage interest deduction, which allows single filers or married couples filing jointly to deduct up to $750,000 in mortgage interest paid, or $375,000 for married individuals filing separately.Property tax deductions of up to $10,000 for joint filers or $5,000 for single or married filing separately individuals are also available.

If you’re a home-based business owner, you can also benefit from the home office deduction, which is based on the percentage of your home space used for business purposes.

1. These are just a few of the more common ways to boost your tax refund. Just make sure you gather all the necessary tax forms, receipts, and a copy of your prior year tax return before starting the tax preparation process.
2. Managing your tax refund
3. One of the most common questions taxpayers have is, “When will I get my tax refund?” We’ll walk you through the timeline for receiving your refund and provide tips on checking its status so you can anticipate its arrival.

Using the tool linked above, we can help you check your tax return’s e-file status. Knowing the status of your return will allow you to estimate when your refund will arrive. To use the tool, all you have to do is provide us with the following information:

1. The year of the tax return you want to look up
2. What type of tax return it is (individual, corporation, etc. You can use the tool by providing us with the following information:
3. Your lastname, zip code and Social Security number

We will also track your federal refund and determine its current status. We can also track your state refund based on which state income tax returns you filed. Before you fill out Form W-4, here’s what you should know about its impact on your refund. The form was redesigned in 2020, following the Tax Cuts and Jobs Act which increased the standard deduction and eliminated personal exemptions. The changes were made to simplify Form W-4, and to align it with the revised Tax Code to ensure more accurate withholding. Form W-4 now consists of five sections, and you only need to fill out the ones relevant to your personal situation.

The first section gathers your personal information such as name, address, Social Security number (SSN), and filing status. The second section is for multiple jobs. You would fill it out if your spouse works or you have more than one occupation. This will help you estimate any additional income. The third section allows those with dependents who have to adjust their withholding to include the Child Tax Credit. You can change line 4(c), on Form W-4, if you want a larger refund. You can update your W-4 with your employer at any time, but you should especially make sure to review it after important life events such as marriage or the birth of a child, as these events can have a big impact on your tax situation, and subsequently, your withholding.

Tax refund booster

Speaking of adjusting your Form W-4 withholding — we can help with that too.

• Introducing our Refund Booster1 tool, your key to fine-tuning your tax situation. This tool will help you create a new Form W-4 that matches your needs, whether you want a smaller refund and more money per paycheck or a bigger refund with less money per paycheck. We will ask you if you would like a larger refund, a larger paycheck, to be the same as last time, or as close as possible to zero. We will also ask you about your filing status, how many jobs you have (and if applicable, your spouse) to ensure that your withholdings are as accurate as possible. We will ask you for any 401(k), HSA, FSA or pre-tax childcare credits account contributions that you plan to make this year. You’ll need to tell us if you have any dependents — this will allow us to factor in the Child Credit — as well as any other income that you plan to earn during the year (interests, dividends, retirements, etc.). We will also ask you some questions about the student loan interest that you plan to pay and IRA contributions that you plan to make. You will then need to provide us with some basic information such as your name, SSN and address in order for us to complete your new Form W-4. Once you sign it, you’ll be able to print the form and give it to your employer.
• Receiving your tax refund
• Once the IRS receives your income tax return, the wait for your tax refund begins. While you’re expecting your tax refund, here are the steps that have to happen before your refund gets to you.

How to check your tax refund status

Anxious to have that refund cash in hand? We can help you learn when and how to track the status of your tax refund.

There are three main ways to track your tax refund: the “Where’s My Refund?” official online tool by the IRS, the IRS2Go mobile app, and the IRS TeleTax System, reachable at 1-800-829-4477.

The time it takes to track a tax refund depends on your filing method. You can check the status of your tax refund within 24 hours if you filed electronically. Paper filers, however, must wait at least four weeks to access updates online or via mobile apps. If you want to use the IRS TeleTax System after paper filing, the IRS advises you to wait at least four weeks before checking by phone.

The refund process is divided into three stages:

Return Received

Refund Approved

Refund Sent

If issues arise, the “Where’s My Refund?” tool may direct you to contact the IRS for more information. Paper filers who choose direct deposit may have to wait up to eight weeks to receive their refunds. If you want to receive your refund quickly, choose electronic filing over mailed-in filing. Direct deposit is also better than receiving a check. Typos, math mistakes, and missing signatures are all common errors. Filing an amended return to correct any of these errors can further prolong the process. Want to get your refund ASAP? There are ways to expedite your tax refund.

Firstly, filing your taxes early enhances the speed of your refund. The sooner the IRS receives your income tax return, the sooner they can start processing it, which means your tax refund will be processed sooner as a result.

Another way to ensure you receive your refund quickly is to e-file. TaxAct simplifies the efiling process by guiding you to claim tax deductions and credits that are applicable to your situation. It also pulls all the necessary tax documents during the efiling process. Opting for electronic filing significantly accelerates the refund process compared to mailing a paper return, which can take up to six to eight weeks for the IRS to process.

Direct deposit is another key element to getting your tax refund quickly. Direct deposit is used by 8 out of every 10 taxpayers, and over 90% of direct deposit refunds are processed within 21 days. You can choose direct deposit when filing with TaxAct. All you need to do is enter the routing and account numbers from your paper check or online banking. Refunds are usually processed within 21 days. If it’s been more than 21-days, you can log on to the IRS website, enter your Social Security Number, filing status and refund amount, and check your refund status. You can also call the IRS TeleTax system at 1-800-829-4777 after at least four weeks. Direct deposit and electronic filing are the best ways to speed up your refund. Why is my tax return taking so long to process?

There are a few factors that determine how quickly your refund will be processed and when the money will reach your bank account.

Certain things can affect your refund timeline. Let’s discuss your tax refund timeline once you have submitted your income tax returns. If you efiled your income taxes through TaxAct or other tax software providers, you can expect to receive your refund within 21 working days. The process begins when the IRS accepts your return and initiates the refund processing. After that, the 21-day clock starts. You will need your Social Security Number, filing status and exact refund amount to verify. You must wait four full weeks after filing a paper tax return before you can check your refund status. You can also use the IRS2Go mobile app or call the automated refund hotline at 800-829-1954 to track your tax refund.

Several reasons might delay your tax refund beyond the usual 21 days. You may need to file Form 8379 for Injured Spouse allocation, or you might have to mail in a paper return. Other reasons include making mistakes on your tax returns, submitting incomplete returns, being a fraud victim or identity theft. Any of these scenarios can extend IRS processing times and subsequently delay your tax refund.

Remember, to expedite the receipt of your tax refund, e-file your income tax return and opt for direct deposit, as paper checks take longer to issue. Verify that your tax return contains all the information you need and that there are no typos. How to spend your tax refund wisely

Did your tax refund come in handy this year? Here are some ideas on how to invest and use your tax refund.

Put the money into a savings or emergency fund so you have cash available for unexpected expenses. Consider a health-savings account (HSA) to save on medical expenses. Financial experts recommend that you save three to six months’ worth of expenses as an emergency fund. If you go this route, you might want to opt for a high-yield savings account or certificates of deposit (CDs) due to current inflation.

Pay down debt.

1. If you have high-interest loans or credit card debt, think about using your tax refund to pay them off faster. Prioritize debts with the highest interest rates to save more money in the long run.
2. Boost your retirement.
3. Another option is to invest in your future by directing your tax refund towards retirement savings, such as a traditional IRA or Roth IRA. Be aware of contribution limits to avoid additional taxes, and remember that contributions for the previous year can be made until the April tax filing deadline.

Invest it.

Consider expanding your investment portfolio by putting your tax refund into stocks, crypto, bonds, or tangible assets like gold coins. Keep in mind the tax implications, including reporting capital gains or interest.

Open a 529 plan.

If your children or other relatives need to save money for college, investing in a plan like a 529 is a great option. These funds are tax-free when used for qualified educational purposes.

Give a gift.

If you’re financially secure and want to benefit someone else, gifting is a good way to spend your tax refund. You can give up to $18,000 a year in 2024 without paying tax. Larger gifts may fall under the IRS lifetime exclusion. You can use your tax refund to achieve your financial goals. Whether it’s building an emergency fund, paying off debt, saving for retirement or education, or giving back through gifting, just make sure to choose the strategy that aligns with your long-term financial well-being.

Boost your retirement with your tax refund

If you’ve recently received a hefty tax refund, you might be contemplating various ways to spend it, such as a relaxing getaway or upgrading your home appliances and wardrobe. However, consider a longer-lasting investment in your future — compound interest, which can significantly boost your retirement.

Whether you’ve encountered it through credit card debt or enjoyed its benefits through investments, you’re likely familiar with the power of interest over time. Investing a lump sum wisely can leave a lasting impact on your financial well-being.

One effective way to utilize your tax refund for retirement is to pay down high-interest debt. Reducing credit card debt, while not a traditional form of investment, is an investment you make in yourself. You can also put your refund in a Health Savings Account, especially if you are on a high-deductible plan. HSAs provide tax benefits on medical costs. They offer tax-deductible contributions and tax-free growth. You can also withdraw funds for qualified medical expenses. Unlike other accounts, there’s no “use it or lose it” policy, and you have full ownership of the money.

Another strategy is to maximize your Roth IRA contributions. Roth IRAs let you store extra money after tax. The amount grows tax-free. Roth IRAs have fewer restrictions and allow withdrawals without penalty at any time. IRAs offer a variety of tax benefits, even though they involve pre-tax funds. You can fill your IRA with different investments depending on what you want. If you want to increase the size of your portfolio, you might consider investing in gold. We go over this option in more detail in our article Is It Crazy to Buy Gold Coins for Investments?.

Using your tax refund in one of these ways can significantly enhance your retirement savings. These strategies can provide a solid foundation for long-term financial security and ensure that your money works for you over time.

The bottom line

Remember, your tax refund is not just a once-a-year event; it’s an opportunity to improve your financial well-being. Take the knowledge you’ve gained here and start making the most of your hard-earned money.

For more insights and assistance with your tax-related questions, be sure to explore our other related articles and resources linked on this page.

This article is for informational purposes only and not legal or financial advice.

All TaxAct offers, products and services are subject to applicable terms and conditions.

1Refund Booster may not work for everyone or in all circumstances and by itself doesn’t constitute legal or tax advice. Refund Booster may not work for everyone or in all circumstances and by itself does not constitute legal or tax advice.

Story originally seen here