Tax Refunds: Just the Facts

As tax-filing season gets underway, taxpayers may be anticipating receiving their refund by a certain date, especially if they plan on making major purchases or paying bills. While some tax returns are processed quickly, others may require additional review. As such, those refunds may take longer.

Just as each tax return is unique and individual, so is each taxpayer’s refund. Here is what taxpayers should keep in mind as they are waiting for their refund – especially if they hear about or see that other taxpayers on social media have already received theirs.

Factors affecting refund timing

Different factors can affect the timing of a refund, among them security reviews that help protect against identity theft and refund fraud. Even though the IRS typically issues most refunds in less than 21 days, a particular taxpayer’s refund may take longer. This is because some tax returns require additional review and take longer to process than others such as when a return that has errors, is incomplete or is affected by identity theft or fraud. If more information is needed to process a return, the IRS will contact taxpayers by U.S. mail – never by email or telephone.

Year-end bonus, holiday pay and temporary job may affect refund

Some financial transactions, especially those occurring late in the year, could have an unexpected impact on taxes and any potential refund. Examples include year-end and holiday bonuses, stock dividends, capital gain distributions from mutual funds and stocks, bonds, virtual currency, and real estate or other property sold at a profit.

Because the IRS is a pay-as-you-go system, taxes must be paid as income is earned or received during the year, either through withholding or estimated tax payments. This means that if the amount of tax withheld from salaries or pensions is not enough, the taxpayer may have to make estimated tax payments.

Taxpayers whose 2019 federal income tax withholding unexpectedly falls short of their tax liability for the year, can still make a quarterly estimated tax payment directly to the IRS using Form 1040-ES, Estimated Tax for Individuals. As a reminder, the deadline for making a payment for the fourth quarter of 2019 was January 15, 2020.

Taxpayers who pay too little tax during the year, either through withholding or estimated tax payments, may be charged a penalty when they file. In some cases, a penalty may apply if their estimated tax payments are late, even if they are due a refund when they file.

Refund Offsets: Certain past-due debt reduces refunds

By law, the Department of Treasury’s Bureau of the Fiscal Service (BFS) issues IRS tax refunds and conducts the Treasury Offset Program (TOP). Under TOP, BFS may reduce a taxpayer’s refund and offset all or part of the refund. This is done to pay past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support or other federal nontax debts, such as student loans.

BFS will reduce the refund to pay off the debt owed and send a notice to the taxpayer if an offset occurs. Any portion of the remaining refund after the offset is issued in a check or directly deposited to the taxpayer as originally requested on the return.

Separate from the TOP, refund amounts may also be adjusted due to changes the IRS made to the tax return. When that happens, the taxpayer will get a notice explaining the changes.

E-filing and direct deposit for a faster refund

The majority of taxpayers get their refunds faster by filing electronically and using direct deposit, which is easy, safe, and most of all, secure. This is the same electronic transfer system used to deposit nearly 98% of all Social Security and Veterans Affairs benefits into millions of accounts.

Refunds should only be deposited directly into accounts that are in the taxpayer’s name, their spouse’s name or both if it’s a joint account. No more than three electronic refunds can be deposited into a single financial account or prepaid debit card. Taxpayers who exceed the limit will receive an IRS notice and will be mailed a paper refund check. Whether a taxpayer files electronically or on paper, direct deposit gives them access to their refund faster than a paper check.

If you have any questions about tax refunds, please don’t hesitate to call.