According to data released Thursday by the Internal Revenue Service, the average tax refund for 2013 returns is up 3 percent to $3,034. The IRS processes 90 percent of all refunds within 21 days from when the service gets a tax return but the fastest refunds are issued to taxpayers who opt for direct deposit to a bank. Direct deposit refunds are averaging averaging a little more, $3096. Another option is to get the refund in savings bonds, which can be purchased up to $5000. Savings bond refunds take the longest to process. Taxpayer can check the status of their refunds within 24 hours of filing a return electronically or 4 weeks after mailing it, by going to www.irs.gov/Refunds.
When surveyed about what taxpayers plan to do with their tax refunds, most people said that they would use the money to pay down existing debt. There was one notable exception: Taxpayers between 18 and 34 said they were more likely to spend the money shopping or going out.
This year more Americans are preparing their own tax returns and filing electronically. For those who need assistance, the IRS offers two free tax-return preparation services for people who qualify, Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE). Both are staffed by IRS-certified volunteers. The VITA program offers free, basic tax help to people earning $52,000 or less per year. TCE provides tax assistance to people over 60. It specializes in helping older people deal with retirement issues including 401(k)s and other tax-advantaged retirement savings plans. Volunteers in both programs are knowledgeable about a number of credits for which taxpayers may qualify such as the Child Tax Credit, Earned Income Tax Credit and Credit for the Elderly or the Disabled. The Child Tax Credit and Earned Income Tax Credit are proposed for increases in President Obama’s fiscal 2015 budget.
The IRS has processed 11 percent more tax returns this year than it had at the same point last year. The service has already received nearly 40 percent of the returns it expects to get in 2014. Taxpayers who are owed money tend to file earlier than those who owe the government, so expect the average refund amount to drop as tax season winds down.
If your tax refund is too large
Many people treat their refunds as a windfall instead of the interest-free loan to the government that it is. The tax system is pay-as-you-go so you don’t need to overpay upfront. It’s better to keep your withholding balanced. If you have too little tax withheld you could be hit with a penalty; too much and you’ll take home less in each pay check.
The IRS offers an online calculator to help you find the right amount to have withheld. You don’t need to be an accountant to use the tool, but you do need to collect the relevant information beforehand. Start by looking at last year’s tax return to project your deductions, especially if they are itemized. Now collect the numbers for your gross wages, the tax taken out of your check, and estimate your contributions to any tax-deferred retirement plans. Plug in the numbers and the calculator will give you a result. Remember that you have to make the change to your withholding on a W-4 form through your company’s human resources department and not the IRS.
If you expect to owe at least a $1000 in taxes from income where there is no withholding option, such as from self-employment, interest, dividends, or rent, then you must make estimated tax payments which you can calculate using IRS Form 1040-ES. Estimated payments are due quarterly on April 15, June 15, September 15, and January 15. Be sure to have payments postmarked by those days to avoid payment penalties.
Taxes can be daunting, but these simple tips can put more money in your pocket all year, rather than waiting for an annual bonus that was yours from the start.
photo by Darren Shaw