Sure, many people absolutely dread the thought of facing yet another tax season. Who wants to catalog all those charitable contributions? And dig for every last receipt? And waste time heading to a tax office somewhere?
But plenty of people file in February because they just can’t wait a second longer to get their hands on all that tax refund cash. They’re on edge about the size of their tax refunds, and they’re far from alone.
Roughly 60 million individual tax filers typically file a federal income tax return by the end of February – or nearly 40% of the individual income tax returns filed for the tax year.
Call it tax refund anxiety.
We’re anxious because that once-a-year tax refund check is our ticket to paradise.
“Feeling like you’re flush for a moment, that’s very powerful at a time when a lot of people don’t have a lot of slack in their budgets,” said Jonathan Morduch, professor of public policy and economics at the New York University Wagner Graduate School of Public Service.
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The tax refund often is the single largest chunk of money they will see at once. It’s a windfall that can plug holes in a budget. Or money that can be used to cover a few dreams along the way, maybe a weekend trip in the summer.
The average federal income tax refund was $2,869 in 2019 based on returns filed through Dec. 27, 2019. That’s down slightly from an average of $2,910 in 2018.
If you file your tax return electronically, you can often anticipate receiving a refund within 21 days. Yet many of us think that’s even too long to wait.
“Often people who are living close to their means have built up debt and they see the tax refund as a way to clear a chunk of that debt,” Morduch said.
“They might have built up debt over Christmas and the tax refund is an important part of squaring their balances.”
Credit card balances keep climbing, after all, and hit $880 billion in the third quarter of 2019, according to data from the Federal Reserve Bank of New York.
All the debt that consumers are carrying, of course, means that many budgets are already stretched to the max.
How important is your tax refund to you?
Tax refund cash, not surprisingly, is essential for those living on limited incomes.
The word “anxious” best describes what it’s like to wait for a tax refund, according to about 29% of tax filers who claim the Earned Income Tax Credit and participated in a survey commissioned by H&R Block. The online survey involved 1,005 participants nationwide who claimed the earned income credit.
After all, many are juggling some scary-looking bills.
If they did not receive their income tax refund for any reason this year, roughly two-thirds of those surveyed said it would be challenging to pay for essential living expenses. Many of those surveyed say they use the money to make a house payment, catch up on medical bills or cover the rent and other bills.
The average amount of the earned income credit alone nationwide was around $2,500 in 2019.
To be sure, many also put some money into savings. Nearly one out of four say they may use their tax refund to make a home repair or buy a major home appliance.
How can you track your refund?
You can download the IRS2Go app to check your refund status.
Or you can go online to check Where’s My Refund for your personalized refund date. Or see www.irs.gov/refunds.
The Internal Revenue Service has a refund hotline at 800-829-1954 as well. But the IRS says you should only call if it has been 21 days or more since you e-filed, six weeks or more since you mailed your return, or when “Where’s My Refund” report tells you to contact the IRS.
To check your refund status, you need the Social security number or ITIN shown on your tax return, your filing status and your exact refund amount.
Could some tax refunds take longer to receive than others?
Short answer: Yes.
Acting National Taxpayer Advocate Bridget T. Roberts concluded that many taxpayers who file legitimate returns are being harmed because the IRS’s anti-fraud filters unnecessarily flag their returns and delay their refunds for weeks or months.
During the 2019 filing season, the IRS used a new refund fraud filter – known as “Filter X” – that ultimately flagged and stopped the processing of nearly 1.1 million returns. More than half the refunds were eventually paid.
As a result, the advocate’s office said 71 out of every 100 refunds stopped by these filters were eventually determined to be legitimate.
Another key tip: Tax refunds that include money from the earned income and additional child tax credits are expected to first become available in taxpayer bank accounts or on debit cards by the first week of March, according to the IRS. That’s if the tax filer opts for direct deposit and there are no other issues with the tax return.
What happened to the size of your refund last year?
Last year, taxpayers across the country grumbled when they realized that their tax refund wasn’t as big as it used to be.
Many two-wage earner families, employees who used to deduct unreimbursed expenses and those with extra large state and local tax bills all found themselves at odds after losing key tax breaks.
Many still experienced a tax cut overall but often much of that money showed up in their regular paychecks during the year. Their withholdings had changed given the new tax rules under the Tax Cuts and Jobs Act of 2017.
Employers were required to make the switch in tax withholdings but the changed withholding tables didn’t necessarily reflect the individual situation of specific employees.
Steve Courtney, a WJR Radio personality in Detroit, was upset last year when his income tax refund was about one-third of what he typically received.
This year, Courtney is hopeful things will be more on track.
He made a slight adjustment to his W-4 to boost the amount of money he was withholding from his paychecks in order to generate a bigger tax refund.
“My fingers are crossed,” Courtney said.
As early as February, though, he wasn’t certain since he had not yet met with his accountant.
Tax preparers are crossing their fingers, too.
“I believe more people made adjustments to their paychecks to avoid the same scenario at the April 15 filing date,” said James O’Rilley, CPA and tax director for Doeren Mayhew in Troy.
“I know my clients were asking what they could do to avoid the ‘tax surprise’ again.”
Rachel Locricchio, a certified public accountant and principal at Rehmann in Detroit, said many people didn’t realize the impact of having slightly more money in their paychecks, as several tax deductions were eliminated.
“The (withholding) tables changed behind the scenes,” she said.
“I’m expecting less surprises from my clients this year because we addressed a lot of that. But you never know; there’ll be somebody,” Locricchio said.
So far, much of the buzz early in the tax season hasn’t dwelled on smaller refunds.
“I have not heard the same level of anxiety,” O’Rilley said.
“Last year most taxpayers had no idea of what was going to happen – they assumed that they would benefit from tax breaks and get more in the form of a refund,” O’Rilley said.
“They did not anticipate a reduction or actually owing.”
Even so, many do-it-yourselfers could still be off the mark when it comes to their tax withholding unless they made some changes.
The IRS launched a new Tax Withholding Estimator last August to make it easier for everyone to have the right amount of tax withheld during the year.
It remains a task that you need to do, however. And once you calculate your numbers on the estimator you still must complete a new Form W-4, Employee’s Withholding Certificate, and submit the completed Form W-4 to your employer.
One issue that could hit tax filers this year is that if they were under withholding in 2019, they were doing so throughout the year.
The new withholding tables in 2018 did not hit paychecks until later in February.
Should you be banking on a big tax refund?
Well, theoretically, no.
Many households tend to hold more money out of their paychecks for taxes throughout the year than necessary because they want a generous tax refund check.
Economists and accountants would argue that you’re better offer getting that money upfront during the year and taking a smaller refund or owing a small amount of money.
But many people don’t view things that way.
“Everybody does various things to be able to save,” Morduch said. “Saving up is hard.”
A tax refund becomes one mechanism, not a perfect mechanism, Morduch said, that enables families to forgo spending money throughout the year to essentially save up money for something meaningful.
“Your life, your year is organized around this tax refund. You organize your financial year around getting a tax refund,” Morduch said.
“If it’s not coming, it creates anxiety.”