Tax refunds/tax returns are similar tax terms that most people usually misunderstand. However, understanding the difference between them can significantly add to your tax savviness and overall personal financial management.
Even though both tax terms appear alike, there is a considerable difference between them when considering tax seasons and filing. In this article, we will detail everything you need to help you understand the difference between tax refunds/tax returns. Keep reading for more information!
Tax refunds/tax returns: understanding the difference
If you want to understand the difference between two things or concepts, your best bet is to look into their features. Also, you might want to know how they work and compare their functionality and utility. In the same way, gaining clarity on tax refunds/tax returns requires detailed information about their features.
This way, you can determine what counts as tax refunds and what matters as tax returns. You will also know what to do when you file taxes and expect from the IRS.
Tax refunds/tax returns-What are tax refunds?
A tax refund is any money you receive from the government because you have paid more taxes than you should in the previous filing season. It is like reimbursement for overpaying your income taxes (tax return). Interestingly, according to the IRS, more than two-thirds of Americans get tax refunds.
Even though getting a tax refund sounds exciting, you are better off not overpaying your taxes. The reason is that tax refunds do not yield any financial interests for you. Instead, it means that you gave the government an interest-free loan. The big catch here is that the amount that adds to your taxes and creates the overpayment could have increased your cash at hand.
What’s more, you are in a better position to swiftly attend to your needs when you avoid overpayment of your taxes.
Understanding how tax refunds work?
If you are eligible for a tax refund, the IRS will usually pay you by mailing issued checks to you. Alternatively, a direct bank transfer works just as well to your bank account. However, you should note that tax refunds only apply to people who pay their taxes. You can directly file online for a tax refund provided you are eligible and request a direct deposit.
Usually, a tax refund takes about a few weeks from when the taxpayer files their tax return. But, there are also a few exceptional cases when your tax refund might take longer than usual.
Examples of situations that get you a tax refund
Besides overpaying your taxes the previous year, other situations worthy of a tax refund exist. Here are a few conditions that mean you’re getting a tax refund.
- When you erroneously complete the IRS form W-4, which estimates how much your employee withholds from your paystub.
- You forgot to update your personal information on your Form W-4, like childbirth that qualifies you for child tax credits.
- A 1099 holder or self-employed candidate overpays to forestall unexpected tax bills or tax underpayment penalties.
- You are eligible for refundable tax credits, capable of reducing the amount of taxes the taxpayer owes.
Tax refunds/tax returns-What are tax returns?
When you file a document with details about your incomes, expenses and other relevant financial information, that’s your tax return. Essentially, you are supposed to file your tax return with a tax authority like the IRS, for instance. Your tax return is essential for helping you calculate your taxes and schedule your payment.
This way, you are unlikely to fall short of not paying your taxes. Additionally, you need your tax return to be eligible for requesting a tax refund when you overpay taxes.
To help you understand how tax refunds/tax returns differ, you need to know how tax returns work. Here is how!
Understanding how tax returns work?
Your tax return is essentially a document provided by the tax authority of the state or county within which you are a resident. This tax document carries all your earnings and the metric for determining your tax bills, including withholdings. As far as the IRS is concerned, there are many variations for tax returns depending on how you earn. For instance, if you are employed, you will likely fill a form 1040 and a form 1099 for self-employed individuals.
Tax refunds/tax returns are almost two sides of the same coin, where you can’t have a tax refund if you have not filed your tax return. So while you give to the government through your tax returns, the government gives you any extra through tax refunds. While tax refunds may not be an excellent idea as they limit money in your pocket, others perceive it as a pseudo savings scheme. As a result, they intentionally exceed their payment on tax returns and look forward to substantial tax refunds later.
FAQS: Does everyone get a tax refund?
Does everyone get a tax refund?
Everyone gets a tax refund if they file their tax return. While some people may benefit from tax refunds through credits, a filing is essential to be eligible for a tax refund. The reason is that a filing signifies a previous overpayment for which the filer must be reimbursed.
Why do I never get a tax refund?
If you do not get a tax refund, there are chances that you did not file or did not put out your tax returns. Therefore it means that you did not overpay or did not have any withholdings on your taxable income. In addition, if you are unemployed and didn’t get tax refunds, you did not withhold your unemployment income.
How do I know if I owe the IRS?
Generally, the IRS site provides an individual tax account with secure login. Therefore, you can log in at any time to know how much you owe the IRS. Besides, the personal accounts give information about your balance and 18 months of your payment history. This way, you can stay current on your tax information and better handle your tax refund/tax return situations.