IRS refunds: how to calculate how much I have to pay back and when will I receive my refund?
As the deadline approaches to get you 2021 tax return into the IRS, here’s a look at how to figure out whether you owe Uncle Sam or may get money back.
The 2022 tax season kicked off 24 January and taxpayers have until 18 April to get their 2021 tax return into the IRS or ask for an extension, lest you want to risk incurring penalties. The key to whether you owe Uncle Sam or will be getting money back depends on if you had enough of your income withheld over the year.
However, sitting down and taking account of your options to lower the amount of your annual income that will be taxed can reduce your tax burden. As well looking at all the tax credits that you can claim, many of which were enhanced for the 2021 fiscal year, could bring what you owe to zero or even result in a decent tax refund.
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You have to file a tax return to benefit from provisions that could result in a tax refund
Most Americans must file a tax return every year including in some cases children. Only some taxpayers who are below an income threshold for their filing status are not required to file. However, this year everyone is being advised to submit a 2021 tax return even though there is no new stimulus check measure on the horizon.
There’s a good chance that you could be getting a tax refund this year, with expectations being that 3 in 4 Americans will receive some money back from the IRS. This is thanks in large part to enhanced tax credits pass under the Democrats covid-19 relief and stimulus bill in March 2021.
Many of those improved credits will only be available for the 2021 fiscal year. The failure to gain traction of the follow-up Build Back Better bill, which would have extended the improvements, in some cases permanently, in the Senate saw the changes expire. Taxpayers will have to file a 2021 tax return if they hope to take advantage of the money on the table.
Calculating how much you will owe in taxes
How much you could be liable for each year depends on your age and filing status, both of which are based on your situation on 31 December of the fiscal year that you are reporting your income. That in turn will determine the income thresholds for your tax bracket. The US taxation system is progressive, which means that as you move into each subsequent tax bracket, you only pay what you owe for your income in excess of the previous bracket.
To avoid owing money when you file your tax return it is wise to have the amount that you owe taken out of your monthly income. You can use the IRS’s online Tax Withholding Estimator tool to determine how much you should be taking out of your paycheck each month.
There are several other free tools online from tax preparers like TurboTax and H&R Block, among others. These systems tend to be more detailed, so you will what to gather all possible information and documents that you would need when filling out the 1040 Form to submit to the IRS.
Decreasing the amount of income the IRS will tax
The government gives taxpayers several ways to lower their tax burden through deductions for property, dependents and investing in your retirement, among other things. In some limited cases you can even make tax deductions for your pets, but it generally must be as a business expense. These will help you lower your Adjusted Gross Income (AGI) which could get you into a lower tax bracket.
Take advantage of tax credits to potentially get a bigger refund
Tax credits are a good way to reduce your tax burden, potentially all the way to zero and if they are refundable, could even put money in your pocket. The 2021 fiscal year could see taxpayers claim some increased tax credits, but you must file a 2021 tax return.
Democrats have been pushing to raise awareness of the Child and Dependent Care Tax Credit that was increased and made refundable for the 2021, meaning that even if you owe no taxes you can still claim the full credit. Any portion of the credit that is in excess of what you owe in taxes will be given to you as part of your tax refund.
How long does it take to receive a refund?
Depending on the method your 2021 tax return is sent, you’ll be able to check its status either 24 hours, if you filed electronically, or four weeks, if you submit a paper return, after the fact online with the agency’s “Where's My Refund?” tool.
According to the IRS over 90 percent of refunds are issued within 21 days, the agency’s normal time frame. There is always the possibility that some tax returns will require additional review delaying your tax refund, especially in light of changes made to several credits for the 2021 fiscal year. If it has been longer than twenty-one days, or six weeks for those who submit a paper return, a representative at the IRS can walk through the status of your refund over the phone.