What is a Tax Refund?

This may seem like a trick question, but in many cases, people don’t know everything there is to know when it comes to tax refunds. Some people just know that they get money back when they file their taxes each year. Do you really know all there is to know about your tax refund?

So You Pay Taxes, Right?

If you are legally employed, you pay taxes. In most cases, your taxes are withheld from each paycheck, and you will typically pay the following: federal income tax, state income tax, Social Security tax, and Medicare tax. You may have additional taxes that are specific to your state, while some states like Washington don’t have a state income tax. Your employer pays part of these taxes for you.

If you’re self-employed, you don’t withhold these taxes from your “paychecks,” but you do still have to pay them. Some self-employed individuals choose to pay their estimated taxes quarterly while others choose to pay when they file their taxes at the end of the year. Self-employed individuals get hit pretty hard in terms of taxes because they are the employee and the employer, meaning they have to pay the employer’s portion of the taxes as well.

In most cases, you can also choose to withhold additional taxes from your pay. For example, some who is traditionally employed and self-employed may withhold more taxes from his paycheck to help cover his taxes he owes on his self-employed income.

Playing the Guessing Game

So, you pay taxes all year, but are you paying the right amount? If you don’t withhold enough taxes from your pay, you’ll end up owing the government at the end of the year. If you withhold too much, you’ll get a refund. So, the tax refund, or rebate as it’s sometimes called, is your money, and it’s being refunded to you. You overpaid your taxes and good ole Uncle Sam is giving it back. Isn’t that nice?

While it’s lovely to get a large check, do keep in mind that you’ve been letting the government use your money interest free… If you are set to get a huge refund check (think $1000 or more), you may want to adjust the amount of taxes you pay and take home more money with each paycheck! It’s almost like getting a raise!

Some people say the best balance is to break even, while some people prefer to get a refund, while others prefer to owe a little and pay that when they file. Personally, I like to get enough of a refund to cover the cost of filing my taxes, which costs several hundred dollars.

How Can I Get my Refund?

It’s important to note that if you live in a state with state income tax, you may be getting two refunds. One is your federal refund and the other is your state refund. When it comes to getting your federal refund, you have several options. You can choose to receive a paper check or you can have it direct deposited to your bank. In fact, you can split the refund into up to three accounts when you choose to do a direct deposit. Did you know that you can even buy U.S. Savings Bonds with your refund? Well, you can. You can actually purchase up to $5000 worth of US Savings Bonds using your refund money. It does have to be in multiples of $50. If you’re filing your taxes yourself, and you want to allocate your refund money to multiple accounts or buy savings bonds, use this form.

And Then You Wait

If you’re waiting on your federal refund, you can check on its status here. If you’re waiting on your state refund, you can check its status here. The IRS even has an app called IRS2Go, and you can use that to check your federal refund status as well.

What about You?

What do you think about tax refunds, large or small? Will you be getting a refund this year? Have you gotten it already? Did you owe Uncle Sam money? Tell us about it!

Tags

Leave a Reply

Your email address will not be published.

top

Teach me how to improve my finances, 

so that I can buy a home

and stop wasting my money on rent