About Federal Income Tax Refunds

Federal income tax refunds are payments made to taxpayers each year who paid too much into the system during the previous year. These payments are important to the economic stability of the United States and represent a source of income for many Americans. There are strict time frames and standardized forms that need to be produced and sent into the government agency that is responsible for tracking taxation.

Features

Anyone who has income in the United States needs to file his information with the Internal Revenue Service (IRS). This income is taxed at a rate between 10 and 35 percent depending upon income level. Income can be earned either through a wage paid by an employer or through capital gains from a financial investment. A taxpayer reports his income and then adjusts it with standardized and personal deductions. These deductions can come in the form of costs to do business or special deductions issued that year by the federal government. The final number of taxable income is known as "adjusted gross income."
Over the course of the year, most employers remove a portion of their worker's wages to pay the IRS the taxes you owe in advance. If the amount of money paid in is greater than the amount owed, the taxpayer is entitled to a refund.

Time Frame

In order to get a federal income tax refund, a person needs to file with the IRS. Between January 1-31, employers must send out W-2, 1099 or other forms that report an employee's wages for the previous year as well as any taxes paid or deposits to 401k and retirement funds. Federal income tax forms need to be postmarked to the IRS by April 15 each year. A refund can be issued in as short as a few weeks to months.

Benefits

Federal income tax refunds are an annual stimulus to the American economy. The vast majority of American workers pay taxes throughout the course of the year and end up being entitled to a refund. This money represents an influx of funds that consumers can use to purchase goods and services. According to the IRS, the average tax refund is between $200 and $2,000. Nearly 150 million Americans qualify for refunds every year, injecting roughly $162 billion into the economy each year.

Considerations

Individuals can file for their federal income tax refunds either online or via paper. There are hundreds of forms available to taxpayers to report the proper income level and rebate information. The most commonly used form is the 1040 form. The 1040, also available in a simplified 1040-EZ form, is the most basic document a taxpayer issues to the IRS. It has all of the relevant information for a timely audit by administrators. The other forms are used in conjunction with this form to help determine what each line on the 1040 should report.
Individuals who file electronically online can use either the IRS website or a variety of websites. Companies such as TurboTax or H&R Block offer online federal. Many of these companies offer free federal returns if customers pay to file in the state.
A federal income tax refund can be paid to the recipient either by check or automatically transferred to a checking or savings account.

Misconceptions

Many organizations such as the American Taxpayer Party and tax lawyers commonly recommend that a person should limit her payments to the IRS from her employer throughout the year. This will limit the amount of the federal income tax refund after tax time, even possibly resulting in a taxpayer needing to pay in to the IRS. However, these organizations point to the fact that a refund is money that the IRS held onto throughout the year without paying the entitled taxpayer any interest. They recommend that the taxpayer limit her pay-in amount and invest the money into a savings account that pays interest throughout the year and utilize the funds during tax time.

Resources

• Internal Revenue Services
• Tax Brackets
• 1040 Online