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Tax Refund

Learn when to expect a tax refund after filing a state or federal tax return.

Taxpayers can expect a tax refund when the taxes paid are more than the amount owed. [©Jupiter Images, 2009]
©Jupiter Images, 2009
Taxpayers can expect a tax refund when the taxes paid are more than the amount owed.

Taxpayers are eligible for a tax refund when the amount of income taxes they pay in one year exceeds their tax liability. Taxes provide the primary funding for the federal government's operation and programs. Income taxes are imposed on most types of earnings, including wages, tips, real estate sales, lottery winnings and unemployment compensation. A wage-earner's tax liability, or the amount of income tax the earner is required to pay to the government, is dependent on his or her income and number of dependents. Most states also withhold a state income tax and issue state tax refunds when applicable.

Receiving a Tax Refund

U.S. citizens have until mid-April of each year to file tax returns for the previous year. Once the Internal Revenue Service (IRS) processes a tax return that requires a tax refund, the U.S. Department of Treasury issues the amount of the refund either as a paper check or a direct deposit. Three out of five taxpayers chose to receive their 2007 tax refund by having the money directly deposited into their bank accounts, according to the IRS. Refund recipients who chose to have their refunds directly deposited can split the payment into as many as three separate checking and savings accounts. The IRS recommends direct deposit because the funds are available sooner than if a paper check is issued in the mail, and direct deposit is more secure than mailing a check.

Factors That Affect Tax Liability

The federal government divides all U.S. citizens into tax brackets, which determine the percentage of income tax owed. The income requirement for each tax bracket is adjusted annually, either widening or narrowing income ranges depending on inflation trends. Taxpayers in the lowest tax bracket pay 10 percent of their total earnings. Wage-earners who fall into the highest tax bracket pay a designated amount plus 35 percent of their earnings over that amount. In 2007, there were six income tax brackets.

The IRS uses different tax rate schedules depending on the following five filing status categories:

  • Single
  • Married filing jointly
  • Married filing separately
  • Qualifying widow or widower
  • Head of household

Increasing the Amount of a Tax Refund

Taxpayers can increase the amount of a tax refund by claiming deductions and credits on their tax returns. Possible deductions include expenses related to medical care, education, moving for employment, charitable donations and self-employment. Students also are eligible for education tax credits. Parents may qualify for child tax credits. Low-income workers may be eligible for an earned income credit, which is intended to offset Social Security taxes.

Some taxpayers choose to withhold more taxes than necessary in order to increase the amount of their tax refund. This method of savings is often criticized because it is the equivalent of loaning the government money without charging interest.

Avoiding Tax Refund Scams

The IRS warns of scams that involve falsifying a tax return in order to receive a larger refund. Illegitimate companies prepare tax returns with fraudulent information to lure taxpayers away from legitimate tax preparers, who cannot guarantee a larger refund. Many times, the taxpayer does not realize a falsified tax return has been filed until the IRS issues an audit. To avoid becoming the victim of a tax refund scam, the IRS recommends checking the credentials of tax professionals and using referrals from friends and family. Reputable tax preparers should always sign the tax return and give a copy to the taxpayer.

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