Tax refund
A tax refund is a payment to the taxpayer due because the taxpayer has paid more taxes than owed.
United States
According to the Internal Revenue Service, 77% of tax returns filed in 2004 resulted in a refund check, with the average refund check being $2,100. In 2011, the average tax refund was $2,913. For the 2017 tax year the average refund was $2,035 and for 2018 it was 8% less at $1,865, reflecting the changes brought by the most sweeping changes to the tax code in 30 years.The latest data from the Internal Revenue Service agency shows that the total amount refunded to taxpayers by IRS through 2023 will be approximately $198.9 billion, which is $23.5 billion less than in 2022. That equates to an average refund of $2,878 — or $297 less per person than last tax season.
Taxpayers may choose to have their refund directly deposited into their bank account, have a check mailed to them, or have their refund applied to the following year's income tax. As of 2006, tax filers may split their tax refund with direct deposit in up to three separate accounts with three different financial institutions. This has given taxpayers an opportunity to save and spend some of their refund. Every year, a number of U.S. taxpayers around the country get tax refunds even if they owe zero income tax. This is due to withholding calculations and the earned income tax credit. Because withholding is calculated on an annualized basis, an individual just entering the work force or unemployed for a long period of time will have more tax than is owed withheld. Refund anticipation loans are a common means to receive a tax refund early, but at the expense of high fees that can reach over 200% annual interest. In the 1990s, refunds could take as long as twelve weeks to come back to the taxpayer; the average time for a refund is six weeks, with refunds from electronically filed returns coming in three weeks.
Some people believe that getting a large tax refund is not as desirable as more accurate withholding throughout the year, as a large refund represents a loan paid back by the government interest-free. Optimally, a return should result in a payment owed of just less than the amount that would cause a penalty charge, which is 100% of the prior year's tax, 90% of the current year's tax, or $1,000 for individuals who have direct withholding and do not pay estimated tax. In order to decrease the amount of the tax refund which has to be received by taxpayers, they can turn to one or several of the following methods:
- adjust the amount of tax the federal government withholds from the paycheck. It is recommended for taxpayers to do this in cases where their adjustments to income, exemptions, and deductions remain relatively steady from year-to-year, and if the government consistently is required to give a large refund.
- in the case of people entirely exempt from state tax, they can check with their state income tax authority to see if there is an appropriate form that can be completed and filed, which would exempt them from state withholding
- check tax rates and adjusted gross income thresholds
- take advantage of the medical expense deduction
- maximizing the amount allowed to save tax-free for retirement
A U.S. federal law signed in 1996 contained a provision that required the federal government to make electronic payments by 1999. In 2008, the U.S. Treasury Department paired with Comerica Bank to offer the Direct Express Debit MasterCard prepaid debit card. The card is used to make payments to federal benefit recipients who do not have a bank account. Tax refunds are exempt from the electronic payments requirement. Many U.S. states send tax refunds in the form of prepaid debit cards to people who do not have bank accounts.
New Zealand
In New Zealand, income tax is deducted by the employer under the PAYE tax system. This information is collected and held by the Inland Revenue Department and is not automatically processed. However individual earners can request a summary of earnings to see if they have overpaid or underpaid their tax for each given financial year. To claim a tax refund, a personal tax summary must be filed; this can be done by dealing with the IRD directly or through a Tax Agent. If a personal tax summary is requested in a situation where tax would be owing, a debt is created, so correct calculations prior to this request are important, and these core services are offered by third party Tax Agents. Tax Agents in New Zealand are largely self-regulating, with the Online Tax Association of New Zealand providing guidance and governing rules for New Zealand's largest four tax refund agencies who serve most of the market for personal tax refunds.India
In India, there is a provision of refund of excess tax along with interest. For claiming a refund one has to file the income tax return within a specified period. However, under Sections 237 and 119 of the Income Tax Act, the Chief Commissioner or Commissioner of Income Tax are empowered to condone a delay in the claim of a refund.Provisions of refund of duty exists in indirect taxation. In Section 11 B of the Central Excises Act 1944 which is also applicable in the cases of Service Tax as defined in the Finance Act 1994.