Important things to know about tax refunds

As the tax-filing season approaches, the Internal Revenue Service cautions taxpayers not to rely on receiving their refund by a certain date, especially when making major purchases or paying bills. Some tax returns may require additional review and those refunds may take longer.

Many factors affect refund timing
Just as each tax return is unique and individual, so is each taxpayer’s refund. Here are a few things taxpayers should keep in mind if they are waiting on their refund but hear or see on social media that other taxpayers have already received theirs.

Different factors can affect the timing of a refund. The IRS, along with its partners in the tax industry, continues to strengthen security reviews to help protect against identity theft and refund fraud.

Even though the IRS issues most refunds in less than 21 days, it’s possible a particular taxpayer’s refund may take longer. Some tax returns require additional review and take longer to process than others. It may be necessary when a return has errors, is incomplete or is affected by identity theft or fraud. The IRS will contact taxpayers by mail when more information is needed to process a return.

By law, the IRS cannot issue refunds to people claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) before mid-February. The law requires the IRS to hold the entire refund, including the portion not associated with the credits. This helps ensure taxpayers receive the refund they’re due by giving the IRS more time to detect and prevent fraud.

Using Where’s My Refund?, taxpayers can check the status of their refund within 24 hours after the IRS has received their electronically filed tax return or four weeks after mailing a paper return. It provides a personalized date the taxpayer can expect a refund after the IRS processes the return. Taxpayers should also take into consideration the time it takes to receive a check by mail, or for financial institutions to post the refund to their account.
   
Year-end bonus, holiday pay and temporary job may affect a refund
Various financial transactions, especially those occurring late in the year, can often 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, real estate or other property sold at a profit.

Taxes must be paid as income is earned or received during the year, either through withholding or estimated tax payments. 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. The deadline for making a payment for the fourth quarter of 2019 is Jan. 15, 2020.

The Tax Withholding Estimator, available on IRS.gov, can help taxpayers make sure they have the right amount of tax withheld from their pay. For anyone at risk for a tax-time surprise, making an estimated or additional tax payment soon is the fastest solution. Form 1040-ES includes a useful worksheet for figuring the right amount to pay. This form also includes key tax changes and the federal income tax rate schedules for 2019.

A companion publication, Publication 505, Tax Withholding and Estimated Tax, has additional details including worksheets and examples that can be especially helpful to those who have dividends or capital gain income, owe alternative minimum tax or have other special situations.

The fastest and easiest way to make an estimated tax payment is to do so electronically using IRS Direct Pay or the Treasury Department’s Electronic Federal Tax Payment System (EFTPS). For information on other payment options, visit IRS.gov/payments.

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.

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 direct 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. Where’s My Refund? will also reflect the reasons for the refund offset when it relates to a change on the tax return. IRS.gov has more information about refund offsets.

File electronically and use direct deposit
The vast majority of taxpayers get their refunds faster by filing electronically and using direct deposit. It is simple, safe and 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.

Taxpayers select it as their refund method through their tax software and by typing in their bank account number and routing number. Taxpayers can also let their tax preparers know they want direct deposit. It is even also available to the small number of taxpayers still filing by paper.

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 pre-paid 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.