How to know if you’ll get a tax refund this year


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When you earn an income during the year, you’re required to pay taxes on it that year. You authorize your employer to withhold a certain amount of taxes from your paycheck, or, if you’re an independent contractor, you pay estimated taxes on your own.

If you did the complex and mystifying math correctly, then on Tax Day you should neither receive a refund nor owe additional taxes. That means you were fortunate enough to know every tax deduction and credit you could claim, even though many people may be unaware.

But if, on Tax Day, you fill out your tax return and discover that your employer withheld too little, or if you claimed deductions, credits, or exemptions that you weren’t supposed to claim, then you’ll owe taxes on top of what you paid throughout the previous year. If you are still confused why you got a smaller refund, here’s an explainer.

On the other hand, if you fill out your tax return and discover that your employer withheld too much, or if you didn’t claim deductions, credits, or exemptions that you were eligible for, then you’ll receive a refund. While a refund is nice to have, it also means that throughout the year your paychecks were lower than they should’ve been had you known you were overpaying.


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How tax refunds work

There are two types of income you need to think about when figuring out your taxes:

  • Your gross income, which is the amount you earn before subtracting taxes and adding personal allowances – your deductions, credits, and exemptions.
  • Your taxable income, which is the amount of income that you actually have to pay taxes on after accounting for your personal allowances.

You should also know how personal allowances work:

  • Deductions reduce your taxable income. If you earn $50,000, but had $15,000 in deductions, then you can only be taxed on $35,000.
  • Exemptions are an additional type of deduction. The most commonly claimed federal exemptions were removed by the Tax Cuts and Jobs Act of 2017; most people cannot claim any, although some people may be able to claim them for their state and local taxes.
  • Credits are a reimbursement for taxes you paid during the year. If you owe $4,000 in taxes but receive a credit for $1,000, then you only need to pay $3,000. Most individuals claim the standard deduction, which, as of 2018, reduces their taxable income by $12,000. Other people itemize their deductions if their total amount of deductions for the year exceeded the standard deduction.

Updating your withholding

If you owe taxes on Tax Day or receive a tax refund, that means your withholding wasn’t calculated correctly during the year.
When you first started working for your employer, you filled out a Form W-4, which authorizes your employer to automatically withhold taxes from your paychecks. On Form W-4, you indicate a series of “personal allowances” that you’re claiming, which include deductions and credits you may be eligible for.

In the rush to start a new job, not everyone fills out their W-4 correctly. Some people may underestimate which credits or deductions they’re eligible for; other people may overestimate. When your employer starts withholding taxes from your paychecks, they may be unknowingly withholding too much or too little. Here are some other money things people forget to do when starting a new job

But you can update your withholding at any time by filing a new W-4. Ask your employer for a new copy of the form and be sure to fill it out accurately. Your employer will submit the form to the Internal Revenue Service (IRS), but it could take at least one pay cycle for the changes to take effect. There are other ways to boost your tax refund before you file — here’s a list

Tax Credits

The IRS offers numerous credits for taxpayers. You can claim these credits on your W-4 to reduce the amount of tax withheld from each paycheck. If you don’t claim these credits during the year, you can still claim them on Tax Day when you file your return.
Some tax credits are refundable. That means you can claim the tax credit even if you don’t owe any taxes that year and still receive most of the base amount.

The ‘interest-free loan’ to the IRS

You may want to rethink aiming for a large tax refund because that means you’re overpaying taxes throughout the year and in return receiving a smaller paycheck. Some people describe this as giving the IRS an “interest-free loan.” In other words, you gave the IRS extra cash and let them hold onto it for a year or more.

A better way would be to set your withholding so you’re not paying too much during the year. The IRS offers a withholding calculator that can help do just that.

If you use the correct withholding, you’ll get a $0 refund on April 15th, but you’ll also receive a slightly larger paycheck. The best part is you can invest the difference and earn interest on that amount, like in a high-yield savings account.

Some people enjoy receiving a lump-sum refund payment. But it actually has two serious disadvantages compared to updating your withholding:

  • Because of inflation, the money you overpay throughout the year will be worth slightly less when you receive it back as a refund the following year.
  • If you lose your job or need money in an emergency, having more cash on hand (because you weren’t overpaying your taxes in expectation of a refund) could be a huge help if you can’t survive until Tax Day.

Where’s my refund?

If you’re owed a refund this year, you should receive it within three weeks. You can choose how you want it to be paid: by check or by direct deposit.

Claiming some tax credits could increase the processing time for your refund. Any errors on your tax return could also cause an additional wait.The IRS’s “Where’s My Refund?” service will tell you the status of your refund. If you mailed your tax return, information about your refund should be available within four weeks. If you filed electronically, that information should be available within 24 hours.

Once you get your refund, you may want to spend it responsibly. Here’s a list

This article originally appeared on Policygenius and was syndicated by

Featured Image Credit: Sean Locke.