Tax refund
Encyclopedia
A tax refund or tax rebate is a refund on tax
es when the tax liability is less than the taxes paid. Taxpayers can often get a tax refund on their income tax if the tax they owe is less than the sum of the total amount of the withholding tax
es and estimated taxes that they paid, plus the refundable tax credits that they claim. (Tax refunds are money given back at the end of the financial year.)
, 77% of tax returns filed in 2004 received a refund check
, with the average refund check being $2,100. 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 now split their tax refund with direct deposit in up to three separate accounts with three different financial institutions. This has given taxpayers an excellent opportunity to save and spend some of their refund (rather than only spend 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 loan
s are a common means to receive a tax refund early, but at the expense of high fees that can reach over 2,000% annual interest. In the 1990s, refunds could take as long as twelve weeks to come back to the taxpayer; however, the average time for a refund is now 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 would cause a penalty charge, which is 100% of the prior year's tax (110% for high income individuals), 90% of the current year's tax, or $1,000 for individuals who have direct withholding and do not pay estimated tax
.
However, some people use the tax refund as a simple "savings plan" to get money back each year (even though it is excess money that they paid earlier in the year). Another argument is that it is better to get a refund rather than to owe money, because in the latter case one might find oneself without sufficient money in the checking account to make the necessary payment. When properly filled out, the Form W-4 will withhold approximately the correct amount of tax to eliminate a refund or amount owed, assuming the W-4 was filled out at the beginning of the tax year.
, income tax is deducted by the employer under the PAYE (Pay As You Earn) tax system. This information is collected and held by the Inland Revenue Department (New Zealand)
(IRD) 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.
, income tax is deducted by the employer under the PAYE (Pay As You Earn) tax system. If incorrect tax credits are applied by the employer, then a refund of tax is due. Tax refunds may also be due for income deductions that are applied after the tax year has ended, if one finishes working prior to the year end, or for joint assessment of taxes for a married couple. Tax refunds must be claimed within four years of the end of the tax year if the one is assessed under the PAYE tax system.
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
es when the tax liability is less than the taxes paid. Taxpayers can often get a tax refund on their income tax if the tax they owe is less than the sum of the total amount of the withholding tax
Withholding tax
Withholding tax, also called retention tax, is a government requirement for the payer of an item of income to withhold or deduct tax from the payment, and pay that tax to the government. In most jurisdictions, withholding tax applies to employment income. Many jurisdictions also require...
es and estimated taxes that they paid, plus the refundable tax credits that they claim. (Tax refunds are money given back at the end of the financial year.)
United States
According to the Internal Revenue ServiceInternal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
, 77% of tax returns filed in 2004 received a refund check
Cheque
A cheque is a document/instrument See the negotiable cow—itself a fictional story—for discussions of cheques written on unusual surfaces. that orders a payment of money from a bank account...
, with the average refund check being $2,100. Taxpayers may choose to have their refund directly deposited into their bank account
Bank account
A Bank account is a financial account recording the financial transactions between the customer and the bank and the resulting financial position of the customer with the bank .-Account types:...
, have a check mailed to them, or have their refund applied to the following year's income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
. As of 2006, tax filers may now split their tax refund with direct deposit in up to three separate accounts with three different financial institutions. This has given taxpayers an excellent opportunity to save and spend some of their refund (rather than only spend 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
Earned income tax credit
The United States federal earned income tax credit or earned income credit is a refundable tax credit primarily for individuals and families who have low to moderate earned income. Greater tax credit is given to those who also have qualifying children...
. 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 loan
Refund Anticipation Loan
A refund anticipation loan is a short-term consumer loan secured by a taxpayer’s expected tax refund, and designed to offer customers quicker access to funds than waiting for their tax refund...
s are a common means to receive a tax refund early, but at the expense of high fees that can reach over 2,000% annual interest. In the 1990s, refunds could take as long as twelve weeks to come back to the taxpayer; however, the average time for a refund is now 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 would cause a penalty charge, which is 100% of the prior year's tax (110% for high income individuals), 90% of the current year's tax, or $1,000 for individuals who have direct withholding and do not pay estimated tax
PAYE
Pay as you earn or PAYE refers to a system of withholding of income tax from payments to employees. Amounts withheld are treated as advance payments of income tax due. They are refundable to the extent they exceed tax as determined on tax returns. PAYE may also refer to withholding of the...
.
However, some people use the tax refund as a simple "savings plan" to get money back each year (even though it is excess money that they paid earlier in the year). Another argument is that it is better to get a refund rather than to owe money, because in the latter case one might find oneself without sufficient money in the checking account to make the necessary payment. When properly filled out, the Form W-4 will withhold approximately the correct amount of tax to eliminate a refund or amount owed, assuming the W-4 was filled out at the beginning of the tax year.
New Zealand
In New ZealandNew Zealand
New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...
, income tax is deducted by the employer under the PAYE (Pay As You Earn) tax system. This information is collected and held by the Inland Revenue Department (New Zealand)
Inland Revenue Department (New Zealand)
Inland Revenue , previously known as the Inland Revenue Department, is the New Zealand government department responsible for the collection of over 80% of the Crown's revenue in New Zealand. It also collects and disburses social support programme payments and provides the government with policy...
(IRD) 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.
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(2)(b) 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.Ireland
In the Republic of IrelandRepublic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...
, income tax is deducted by the employer under the PAYE (Pay As You Earn) tax system. If incorrect tax credits are applied by the employer, then a refund of tax is due. Tax refunds may also be due for income deductions that are applied after the tax year has ended, if one finishes working prior to the year end, or for joint assessment of taxes for a married couple. Tax refunds must be claimed within four years of the end of the tax year if the one is assessed under the PAYE tax system.