Everything You should know about Tax Refunds

What’s the difference between a tax return and a tax refund?

If you’re confused, you’re not alone. But understanding these key terms will help you better tackle your taxes.

A tax return is the form you file annually that outlines your income, expenses, investments and other tax-related information. “It is literally the form you file with the IRS and the state government if you have a state with income taxes,” says Jackie Perlman, principal tax research analyst at The Tax Institute at H&R Block.

You get a tax refund when you pay more taxes to your state government or the federal government – through payroll withholding, for example – than your actual tax liability. In this case, the government will cut you a check for the amount overpaid. The average 2019 tax refund, as of May 10, 2019, was nearly $3,000, according to the Internal Revenue Service. As of that date, about three-quarters of the 136 million returns processed had resulted in refund checks issued, according to the IRS.

Confused yet? Here are answers to some common tax refund questions:.

Read on for more information about your tax refund, including when it will arrive and how to maximize the amount received.

Will I Get a Tax Refund?

That depends on your financial situation. Use a tax estimator, such as TurboTax’s TaxCaster, to predict your tax liability. If you have a fairly straightforward tax situation, it should be simple to find out what your tax burden is going to be, says Shashin Shah, a certified financial planner and director at SFMG Wealth Advisors in Plano, Texas. A tax estimator can help you know whether to prepare your finances for an influx of cash – or whether you’ll owe money on Tax Day.

Who Gets a Tax Refund?

Filers who overpaid their taxes during the year can expect to get a tax refund. You’ll need to file your tax return in order to receive the money owed to you by your state or the federal government.

Don’t think of a refund as “free money” – it’s actually already yours. In fact, experts often describe the money in your refund as an interest-free loan to Uncle Sam. That money could be better spent growing in a retirement account, padding your emergency savings or funding another financial goal.

And if you’re getting huge refunds each year, consider tweaking your withholding on your W-4 employment form, making adjustments for life changes, such as new dependents or a change in marital status. Keep in mind that a new form W-4 is slated for use in 2020 and will ask for more information than previous forms did, says Juan Montes, enrolled agent with TheTaxProblem.com, a firm with offices in Ceres and San Jose, California. Withholding is typically a portion of your wages paid directly to the state or federal government. “Now that interest rates are creeping back up a bit, you don’t want to overpay if you don’t have to,” Shah says.

How Can I Get a Bigger Tax Refund?

“If there’s one thing you can do to save money, be more organized,” Montes says. That means tracking receipts, tax documents and forms throughout the year. Those essential papers may include receipts for charitable contributions, student loan interest documentation, property tax forms and other tax documents relevant to your financial life. Whether you’re using a spreadsheet, a digital organizer or an old filing folder, keep tabs on the documents that can score you the largest refund.

Get started on your taxes at the beginning of the year if possible, so the race against the clock doesn’t cause you to forget or neglect potential tax credits or deductions. Filing early may also help you reduce the likelihood that a cybercriminal will file a tax return in your name and collect your refund.

It may be worth visiting a tax preparer if your situation is complex – say you lived and worked in two states during the year or you just bought a home – or if it’s your first time filing taxes. This way, you can feel more confident that you’re claiming the appropriate credits and deductions. To ensure that you’re earning the largest refund possible, find a tax professional who really knows what she’s doing. Visit a certified public account, called a CPA, or an enrolled agent, which is a federally licensed tax practitioner who can represent taxpayers before the IRS. Double-check that the professionals you visit have these credentials since not every state requires certification.

If you file your taxes yourself, don’t let filing fees levied by companies such as TurboTax and H&R Block eat into your refund amount if you qualify to file your taxes for free. About 100 million people are eligible to file free taxes through the IRS-partnered Free File Alliance. Filers who earned an adjusted gross income of $66,000 or less in 2018 were eligible for this program. This is important: Visit the Free File Alliance programs through its portal. It guarantees a truly free product, unlike the companies’ so-called free products offered outside the program, which critics say levy upcharges for all but the simplest tax returns or additional services.

If you suspect that you didn’t get your full tax refund in a previous year, remember that you can amend your tax return within three years of the original file date.

Where Is My Tax Refund?

The IRS states that most tax refunds are delivered within 21 days of filing. Tax filers who want to know when their refund will arrive can track the status of their refund, which they can opt to have delivered via an electronic transfer or as a paper check, through the “Where’s My Refund?” tool at IRS.gov or by using the IRS2Go app. If it has been more than 21 days since you filed online or more than six weeks since you mailed a paper tax return, “Where’s My Refund?” directs tax filers to contact the IRS.

Keep in mind that the IRS may hold onto your refund if you have certain outstanding debts, such as child support or student loan bills, Perlman says. Paying those debts on time will ensure that you get your entire refund.

Going digital will also help hurry along your tax refund. You’ll get your refund faster if you use e-file and direct deposit, according to the IRS.

What Should I Do With My Tax Refund?

Once you receive it, use your refund wisely. While treating yourself isn’t always a bad idea, if you have more pressing financial obligations or your emergency fund needs a boost, use some of that money to help reach those financial goals, experts say. Shah encourages clients to pay off credit card balances and manage debt. Consider your financial goals for the coming year and let your tax refund help you reach them.

When Will I Get a Tax Refund If I File a Tax Extension?

You don’t technically need to file an extension if you’re due a refund. After all, Uncle Sam isn’t going to pester you about money it owes you. But if you do file an extension and you end up being owed a refund, expect it to come in after your return is filed.