A tax refund is the excess amount of money that a taxpayer has contributed to the state or federal government.
If you received a tax refund, it means that you have paid more than you should have last year. People with a regular job can avoid a tax refund if they fill in the W-4 form correctly and keep it up-to-date. Self-employed people should also be very careful e when they report their income and estimate the taxes.
Of course, a tax refund is often considered a pleasant bonus, but it is not completely true. Read ahead to find out what a tax refund is.
When Can You Get a Tax Return?
Naturally, the majority of taxes are non-refundable. But here are the situations when you can get a refund:
- If you have made a mistake filling out the W-4 form and haven’t estimated the amount of taxes to be taken from your paycheck correctly.
- Suppose you have forgotten to update the form. For example, it is crucial to add up the details like the change of a job, the birth of a child, and so on.
- When you overpay purposely to avoid a surprise tax bill, just to be sure that everything is how it is supposed to be. This usually happens to self-employed people.
- When it comes to the Child tax credit, it is currently fully refundable, even though you could have only a partial refund before. Besides, there is no income limit for the credit.
- The EITC stands for “earned income tax credit”. This is a special payment that is made to workers with moderate or low income if they received income through an employer or by being a freelancer involved in business or farm operations. They must meet certain criteria based on their salary and number of family members.
Is Tax Refund a Good Thing?
It seems like it is not wise to complain about the amount of money that gets transferred to your account from the state. Still, experts recommend avoiding a tax refund and being pretty careful when filling out the W-4 form and other important papers. It would be best if you claimed your estimated taxes quite precisely. After all, the closer you can get your refund to zero, the more money you will have throughout the prior year.
However, you still can choose to add an extra percentage to your tax credit for it to come back to you later as a refund. To plan your budget, you can use various online calculators made specifically to assess the amount of refund you will receive eventually.
All in all, there are people who think of a refund as a useful tool to save up for retirement or as salvation in times of trouble. However, if the tax refund is still a while away, don’t despair and reach out to Payday Depot for financial assistance.