Every year, a large number of individuals throughout the United States take advantage of the Internal Revenue Service’s (IRS) tax return system. The system provides individuals with the ability to get a tax refund based on the amount they were over-taxed. According to the IRS, as of April 27, 2018, nearly 58 million taxpayers have been approved for tax refunds, with an average payment per person of $3,263. This amount has changed from the prior year, when the average refund was $3,353.
In the United States, the amount of taxes individuals pay depend on a number of factors, including the amount of money they earned throughout the year, their filing status and the deductions they are able to claim. After the end of the tax year, many individuals are surprised to find out what their tax burden was, and are even more surprised when they receive more money in the form of a refund. In some cases, individuals may even be able to claim more deductions or credits than they were aware of, which can lead to an even greater refund.
This article will explore the factors that affect an individual’s ability to receive a large tax refund. Additionally, this article will explore how an individual can maximize their tax refund, in order to receive the most money possible.
How Taxpayers Receive a Refund
The process of receiving a tax refund begins shortly after a taxpayer files their tax return. Once a taxpayer has filed, the IRS will review their return and will determine whether or not the individual is eligible for a refund. In most cases, if a taxpayer has paid more taxes than they owe, the IRS will send a refund. This is known as an overpayment refund.
Overpayment refunds can occur for a variety of reasons. First, taxpayers often underestimate the amount of taxes they will owe. This can happen because of an employer withholding taxes, or because taxpayers don’t understand all of the deductions and credits they are eligible for. Additionally, taxpayers can also overestimate their taxes and pay too much. In these cases, the IRS will send a refund to the taxpayer.
In addition to overpayment refunds, the IRS also sends refunds to taxpayers who have met certain income requirements. These refunds, known as the Earned Income Tax Credit, are designed to provide extra money to low-income individuals who are working. The amount of the credit depends on the taxpayer’s income, filing status and number of children in the household.
Finally, there are also a number of other refunds taxpayers can claim, such as educational credits and refunds for 529 plans. These refunds are available to taxpayers who have taken advantage of certain tax-advantaged investments.
Factors That Affect Tax Refunds
There are a number of factors that can affect an individual’s ability to receive a large tax refund. The exact amount of the refund an individual will receive depends on the amount of taxes they paid, the deductions and credits they are able to claim and their filing status.
The first factor that affects tax refunds is an individual’s income. The amount of taxes an individual pays depends on the amount of money they make throughout the year. In general, the higher an individual’s income is, the more taxes they will pay. This means that individuals with higher incomes will often receive smaller refunds than those with lower incomes.
The second factor that affects tax refunds is an individual’s ability to claim deductions or credits. Certain deductions and credits can reduce the amount of taxes an individual pays and can increase the size of their refund. Examples of these deductions and credits include those for educational expenses, child care, charitable donations and other investments. The amount of deductions and credits an individual is able to take advantage of will depend on their income, filing status and other factors.
The third factor that affects tax refunds is an individual’s filing status. The way in which a taxpayer files their taxes can have a big impact on the amount of taxes they pay and the size of their refund. For example, those who file jointly often have lower taxes and larger refunds than those who file as individuals.
How to Maximize Your Tax Refund
Now that we have discussed the factors that affect tax refunds, let’s take a look at some of the ways individuals can maximize the amount of their refund. Here are a few tips to keep in mind:
The first way to maximize your refund is to make sure you are taking advantage of all of the deductions and credits you are eligible for. This includes looking into the Earned Income Tax Credit, as well as other deductions or credits you may be able to take advantage of, such as those for charitable donations, education expenses or childcare costs.
The second way to maximize your refund is to make sure you are accurate with your filing. This includes ensuring that you are filing with the correct filing status, as well as double checking your return for any mistakes that could result in additional taxes or penalties.
Finally, it is important to make sure you are withholding the correct amount of taxes from your paycheck. If you are withholding too much, you may not receive as large of a refund as you would like. On the other hand, if you are withholding too little, you could end up owing money to the IRS.
The amount of taxes that taxpayers owe each year is one of the most important factors in how much they will receive as a tax refund. With nearly 58 million returns approved by the IRS, individuals had an average refund payment of $3,263 this year.
Understanding the factors that affect an individual’s ability to receive a tax refund, as well as how to maximize the amount of their refund, is important for taxpayers of all income levels. Taking advantage of deductions and credits, as well as ensuring accuracy in filing can help individuals get the most money possible. By taking these steps, taxpayers can make sure they are getting the most out of their refund.
Tax returns can provide individuals with an unexpected windfall in the form of a refund. Although the average refund this year was $3,263, individuals who understand the factors that affect tax refunds, and know how to maximize the amount of their refund, can get even more of their hard-earned money back.