Skip to main content

Tax Refunds

A tax refund is a repayment of excess taxes that have been paid or withheld. Here are some key points about tax refunds:

  • During the year, taxes are withheld from paychecks or estimated taxes are paid to the government in anticipation of a future tax bill. These routinely withheld or paid taxes are essentially an estimate of what is actually owed.
  • When filing an annual tax return, the final tax amount owed is calculated based on income, deductions, tax rates, etc. If the taxes already paid or withheld during the year exceed this final tax owed amount, the difference is returned back to the taxpayer as a tax refund.
  • Tax refunds can be claimed for both Federal income taxes as well as state taxes. The most common form of tax refund comes from excess withholding of income taxes from employee paychecks throughout the year.
  • Tax refunds put money back into the hands of taxpayers rather than the government keeping the money until the next tax season. The average tax refunds run into thousands of dollars.
  • To receive tax refunds on time, taxpayers should be sure to file their returns promptly and opt for e-filing along with direct deposits into bank accounts. This accelerates the payment of any refunds due to the taxpayer.

Getting a Tax Refund in the United States​

Tax refunds put money back in the pockets of taxpayers when they overpay taxes throughout the year. The United States taxation system provides tax refunds at both federal and state levels.

Federal Income Tax Refunds​

Most citizens receive federal income tax refunds due to excess tax being withheld by employers on paychecks or made in estimated tax payments. When filing the annual tax return, if total tax liability is less than total taxes paid, the Internal Revenue Service (IRS) issues a federal tax refund for the overpayment.

For example, Lisa had $5000 in federal income tax withheld from her paycheck but after filing only owed $4000. She would receive a $1000 federal tax refund in this case. The average federal tax refund is around $2755.

Getting a Federal Income Tax Refund​

To receive federal and state tax refunds, taxpayers must proactively file annual income tax returns. The IRS offers three ways to file returns - IRS Free File for taxpayers under an income threshold, paid tax software, or paper filing. Taxpayers providing bank account details can get fast refunds via direct deposit otherwise physical checks are mailed.

Most taxpayers file electronically as it has faster processing, fewer errors, and quicker access to refunds. The IRS issues most refunds in less than 21 calendar days from the date of receiving the tax return.

Checking Federal Income Tax Refund Status​

The IRS online portal “Where’s My Refund” enables checking federal tax refund status. Taxpayers can check status within 24 hours of an electronically filed return and 4 weeks post a paper return. The portal shows stages of refund processing and also whether any issues are delaying it.

State Income Tax Refunds​

43 U.S. states levy state income taxes. Excess taxes get refunded when filing state tax returns, similar to federal. For example, if John has $3000 state tax liability but $4000 was withheld by his employer, he would get a $1000 state tax refund. State tax returns can be filed together with federal on tax software.

State Tax Refunds on Purchases​

Along with income tax, getting refunds on sales taxes paid is also possible in 38 U.S. states. Tourists and visitors can claim Sales Tax Refunds on items purchased subject to sales tax, like clothes, electronics, jewelry etc. The sales tax rates range from 2.9% to as high as 7.25% depending upon the state.

To get sales tax refunds, purchasers must request sellers for refund forms that prove the tax paid. This form must be presented when exiting the U.S within 6 months to get that portion of tax refunded in cash or credit. This encourages tourism and business for American brands globally.

Therefore, the U.S tax system provides multiple options for taxpayers to get excess taxes back. For quick access to refunds, e-filing tax returns and providing bank account details is highly recommended. Keeping diligent track of taxes paid on income and purchases enables maximizing refunds.

Use Lookuptax for VAT validation?

Lookuptax VAT validation revolutionizes VAT number validation with its robust platform, empowering businesses to seamlessly verify VAT numbers across over 100 countries. Our cutting-edge technology ensures accurate and efficient validation, reducing errors and enhancing compliance.