Tax Refund
Candlefocus EditorA tax refund is money that is returned to you from the Internal Revenue Service (IRS) after you overpay your taxes during any given tax year. If you owe taxes, then you may be able to receive an income tax return.
How Does a Tax Refund Work?
When you file your taxes for the year, the IRS will determine how much in taxes you need to pay based on your income and deductions. If your employer has already withheld this amount, then you may be eligible for a refund depending on the amount withheld. This can be done either by filing a tax return or through direct deposit. The amount of the refund will be based on the difference between what you have already paid and your actual tax liability.
Why Might I Receive a Tax Refund?
Depending on your income, deductions, and other factors, you may be eligible for a tax refund if you overpaid. Alternatively, you may be entitled to a refund if you qualify for a refundable tax credit, such as the Earned Income Tax Credit, the Premium Tax Credit, or the Child Tax Credit.
What Should I Do to Avoid Overpaying?
If you are an employee, one of the best ways to avoid overpaying is to accurately fill out your W-4 form. Be sure to provide updated information so that your taxes are accurate. If you are self-employed, it is important to keep track of quarterly taxes and to estimate them with greater accuracy so you don’t overpay on taxes.
What Is the Difference Between a Tax Refund and a Tax Bill?
The difference between a tax refund and a tax bill is that a tax refund is the money you receive when you have overpaid on your taxes, whereas a tax bill is the money that you owe if you have underpaid on your taxes. This amount is due when you submit your taxes and is payable to the IRS. Therefore, it is important to accurately estimate your expected tax liability each year and to file your taxes as soon as possible to reduce the possibility of owing taxes.