What is a Tax Refund? How to Claim in 2024?
What is a tax refund?
A tax refund is when the government pays you back for overpaid taxes. If you paid more than you owe, the IRS will refund you the extra amount. This can happen for several reasons:
- You might get a big tax break when filing your returns after paying estimated taxes throughout the year.
- Too much income tax might have been withheld from your paycheck.
- You may have missed claiming tax credits like the Earned Income Tax Credit / the Child Tax Credit.
Regardless of the reason, you want to make sure you get your money back. Here’s how you can do that and what to expect from the IRS.
Will the IRS notify you If you’ve overpaid?
If you overpaid your taxes, don’t expect the IRS to let you know. The IRS processes an enormous number of tax returns, so notifying everyone about overpayments isn't feasible.
Usually, you discover an overpayment when you fill out your 1040 tax return. You can then request a refund for the extra amount. However, if you missed out on tax credits, the IRS might notify you.
Fun fact: If you overpay your taxes and don’t claim your refund within three years, the money actually goes to the U.S. Treasury! So, make sure to claim your refund in time to keep what’s rightfully yours.
Tax credits the IRS checks automatically
- Child tax credit: For taxpayers with children under 17, the Child Tax Credit can provide a maximum benefit of $2,000 per dependent. If you missed this credit, the IRS might notify you.
- Earned income tax credit (EITC): This credit is for low-to-moderate income earners and can reduce your tax bill and possibly entitle you to a refund.
- American opportunity tax credit (AOTC): This credit helps offset higher education costs and can be worth up to $2,500 per student. If it brings your tax liability to zero, you could get up to 40% of any remaining amount of the credit as a refund (up to $1,000).
- Premium tax credit (PTC): This credit helps lower the cost of health insurance for low-to-moderate-income households. If you don’t use the full amount, you might get the balance as a refund.
If the IRS finds that you qualify for these credits but haven’t claimed them, they’ll send you a notice. This notice will detail your new tax bill or refund amount. Sometimes, the IRS may ask for additional information or documentation before finalising the correction.
How to reclaim overpayments on your taxes
Option #1: Get a refund
The easiest way to reclaim your overpayment is to request it back as a tax refund. When you file your taxes, simply fill out the section starting on line 34 of Form 1040, where you indicate where you'd like your refund sent.
You can choose to receive your refund as a paper check in the mail or opt for a direct deposit into up to three different accounts, including savings and retirement accounts. If you're into investing, you can even use your refund to buy up to $5,000 in Series I savings bonds.
Remember, you have three years from the initial filing deadline to claim your refund. So, if you missed the April deadline or still haven't filed from a few years back, you're still in the clear. For instance, the deadline for filing 2022 tax returns was April 18, 2023. If you were granted an extension, you get three years from that extended deadline to request your refund.
Be aware that if you owe child support or have overdue student loan bills, part of your refund may be taken to cover those debts. And if your refund seems larger than expected, it’s wise to double-check before spending it.
Option #2: Apply the overpayment to next year’s taxes
You can also apply your overpayment to next year’s tax bill, essentially prepaying it. On line 36 of your 1040 form, you can choose to apply some or all of your refund to your next estimated tax bill.
This way, you can reduce what you’ll owe next year and still get part of your refund now.
Option #3: File an amended return
If you realise you’ve overpaid after filing your return, you will be able to file an amended return to correct the amounts or claim missed credits. Use Form 1040-X, Amended U.S. Individual Income Tax Return, and follow the instructions.
Keep in mind it can take up to sixteen weeks for the IRS to process an amended return.
How to stop overpaying your taxes
While overpaying taxes isn’t as problematic as underpaying, it still means you’re giving the IRS an interest-free loan with money you could be using elsewhere. Here's how you can avoid overpaying:
Method #1: Use a tax calculator
Ideal for: Those with a clear idea of their yearly income
If you have a stable income, maybe from a few steady clients, a tax calculator can be your best friend. Use a quarterly tax calculator or an income tax calculator to determine how much tax you need to pay each quarter. This keeps your payments accurate and prevents overpayment.
Method #2: Leverage the safe harbor rule
Ideal for: Individuals expecting significant changes in income from the previous year
The safe harbor rule helps you avoid penalties even if you underpay your taxes. To use this method, you need to pay:
- Either 100% of last year’s tax bill, or
- 90% of this year’s expected tax bill.
Divide whichever amount you choose into four equal payments. Pro tip: Select the lower of the two amounts to minimise your estimated tax payments while staying penalty-free.
Method #3: Annualized income installments
Ideal for: Those with fluctuating income throughout the year
This method requires more effort but results in more precise quarterly payments. Here’s how:
- Calculate your total tax liability four times a year before each quarterly payment is due. This way, you can adjust your payments according to your income fluctuations.
- Pay your estimated taxes based on these calculations.
By using these methods, you can stop overpaying your taxes and make sure you’re keeping more of your hard-earned money throughout the year.
How can I check the status of my federal tax refund?
Wondering where your tax refund is? You can check its status using the IRS's "Where's My Refund" tool online. Just click the link, punch in your refund amount, filing status, and either your Social Security number or your individual taxpayer identification number, and voila! You'll see if your refund is on its way or if there's a hiccup that needs fixing. If you're more into apps, try the IRS2Go app for quick updates. Prefer using the phone? Dial up the IRS Refund Hotline at 800-829-1954. And if you really want to talk to a person, call 800-829-1040.
Check out more on Inkle Tax.
Can I check the status of a tax return refund using the "Where's My Refund" tool?
Nope, the "Where's My Refund" tool is only for your original tax return refunds. To check on an amended return refund, you'll need to call the IRS at 800-829-1954 or talk to a representative at 800-829-1040.
Why did I receive a different amount for my federal tax refund than I expected?
If your refund is less than you expected, it might be because you owe some overdue debts, like child support or other federal payments. The Treasury Offset Program lets the government take what you owe from your federal payments to cover those debts. Got questions about your refund amount? Give the IRS a call at 800-829-1040 or reach out to your local IRS office.
Can I have my federal tax refund directly deposited into my bank account?
Absolutely! You can have your federal tax refund directly deposited into your bank account. It's safe, reliable, and super convenient. Plus, you’ll get your money faster!
How long does it take to receive my federal tax refund?
Typically, you'll see your refund within 21 days if you e-filed your tax return. It takes longer for paper returns. You can use the "Where's My Refund" tool or call their automated system for an estimated date of when you can expect your refund.
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