When to expect your tax refund

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The 2021 tax season started about two weeks later than normal this year, due to recent changes to federal tax law. However, the delay should not affect when your tax refund arrives. The majority of taxpayers are expected to get their tax refund within 21 days of filing. The Internal Revenue Service (IRS) said it plans to deliver the first round of refunds in the first week of March, which is the same timeframe as if the filing season had opened in January.

While it’s impossible to predict the exact day your tax refund will arrive, there are factors that can influence your timing.

Key points to remember

  • You may receive a refund if you overpaid your 2020 income taxes or have claimed a non-refundable tax credit.
  • Taxpayers who file electronically and request direct deposit will receive their refunds first.
  • The IRS offers a tool that allows you to track and view the current status of your refund.

How Tax Refunds Work

A tax refund is a refund of excess taxes paid during the year. Most workers prepay their federal taxes on their paycheck or by depositing every quarter estimated taxes.

Employees must complete a Form W-4 (Employee Deduction Certificate) when they start to work in a company. The information entered on an employee’s Form W-4 will determine how much their employer will withhold from their pay to cover federal income taxes. If the employer withholds too much, the taxpayer may receive a tax refund. If you are short, you will owe taxes.

Contract workers are considered both an employee and an employer. They do not complete Form W-4; instead, they are required to pay their own taxes on a quarterly basis. The estimated tax payments for 2021 are due April 15, 2021; June 15, 2021; September 15, 2021; and January 18, 2022 (this is January 18, not January 15, as the latter is a Saturday, which is not a working day, and January 17 is Martin Luther King Jr. Day, a federal holiday.) This is true even though the personal income tax 2020 filing deadline has been extended to May 17, 2021.

You may also receive a tax refund if you request a refundable tax credit, as the Income Tax Credit (EITC). Most federal tax credits are non refundable and will only reduce the amount you owe in taxes. However, if you claim a refundable tax credit greater than the amount you owe, you will receive the difference as a tax refund.

Although the IRS has extended the 2021 tax filing and payment deadline to May 17 due to the COVID-19 pandemic, the estimated tax payments for 2021 taxes are still due on April 15.

Factors that can affect timing

Taxpayers can choose how they submit their tax return and wish to receive their refund. How you choose to file your taxes will determine how quickly your return is processed.

The IRS encourages taxpayers to file their return electronically and choose to receive their refund via direct deposit. Doing so will likely get your refund faster than someone who submits a return by mail and requests a paper check. This is especially true for the 2021 tax season, as the IRS and the U.S. Postal Service have experienced delays due to COVID-19. (A known Investopedia filer submitted a 2019 return by mail on July 8, 2020, a week before the July 15 deadline extended by COVID, and did not receive his tax refund check until February 18, 2021. .)

In some cases, you may receive your refund in the form of a paper check even though you have requested direct deposit. According to the IRS, this could happen if:

  • You request that the refund be deposited electronically into an account belonging to someone other than you or your spouse.
  • Your bank rejects the transaction.
  • You are requesting that more than three electronic refunds be deposited into a single bank account.

(This also happened to the above-mentioned filer, who requested direct deposit. The reason, according to the IRS, was that “we cannot honor direct deposit requests for refunds for previous years.” Because ‘this was a 2019 tax refund paid in 2021, the IRS had to send a check, even though the delay was with the IRS and not the filer.)

Your tax refund may be delayed if your return is incomplete, contains errors, has been affected by fraud or identity theft, or requires further review. There are also specific items that may delay your refund. For example, tax returns that include Form 8379, Injured Spouse’s Allowance Treatment can take up to 14 weeks.

If you are claiming certain tax credits, the earliest you will receive your tax refund is the first week of March. Under the Protect Americans Against Tax Hikes Act, 2015 (PATH), the IRS is prohibited from issuing refunds until mid-February for taxpayers who claim the EITC or the Supplementary Child Tax Credit (ACTC).

How to track your tax refund

The IRS offers a Where’s my refund? tool, which can provide the status of your return if you have not received it. You can access your refund information with the tool within one day of filing electronically or approximately one month after sending your return by mail.

Where’s my refund? The tool is updated daily and can be found on IRS.gov or the IRS2Go app. To use the tool, you must provide your social security number or individual tax identification number (ITIN), your income tax status, and the exact amount of your refund. The tool will identify what stage your refund is currently at: return received, refund approved, refund sent, or some other explanation of what’s going on.

(There may be significant delays before a return is marked “received.” Although the aforementioned declarant taxes were delivered on July 16, 2020, according to the US Post’s tracking service, the return has not. been marked as “received” until mid-December 2020. Previously, its status was simply indicated as “unknown”.)

When you see that your tax refund is approved, it will probably take a few more days before it shows as “sent”. From then on, it takes approximately five days for your refund to arrive electronically or several weeks to arrive by mail.

You should only contact the IRS directly about the status of your tax refund if:

  • It has been at least three weeks since you filed your return electronically.
  • You sent your return by post more than six weeks ago.
  • You were prompted to contact the IRS when using Where’s my refund? tool.

COVID-19 has also affected this rule. As of February 25, 2021, the IRS website has told all paper filers not to call at all because “it takes us longer to process mailed documents.” However, this reassures reporters that it “processes all mail in the order in which we received it”.

Best Ways to Spend Your Tax Refund

If you expect a tax refund this year, you will want to spend it wisely. Here are some ways to put that money to good use.

  • Pay off credit cards—Having a balance on credit cards can hurt your credit score and may prevent you from being eligible for a mortgage or other loan. Paying off your debt early can help improve your credit score and save you money on interest.
  • Save for an emergency—Experts recommend having three to six months of savings in a emergency fund. This way, you will be covered in the event of job loss or other unforeseen financial difficulties.
  • Save for retirement—In 2021, individuals can contribute up to $ 6,000 to a traditional or Roth individual retirement account (IRA). Taxpayers aged 50 or over can contribute an additional $ 1,000. Both types of accounts offer tax benefits to help you grow your savings.
  • Save for college—If you have children or grandchildren, consider putting money in a 529 college savings plan. Your investment grows tax-deferred, and withdrawals used to pay for college education are tax-free. Every dollar you save will reduce the amount the child has to borrow in student loans.

The bottom line

To ensure a quick turnaround time with your tax refund, file electronically and request direct deposit. Sending your tax return the old-fashioned way can lead to unnecessary, inconvenient and significant delays. The sooner you can get your refund, the sooner you can start investing it.

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