Over the years of being in the tax world this idea of a refund, while appearing to be simple, is often confused. Here we are going to talk about two things:
- Where’s my refund?
- What is a tax refund?
Lets knock out the most important one first!
Where’s My Tax Refund?
It’s your money, where is it? Before we go to far I just want to outline first that the best way to ensure a quick refund is to complete an accurate tax returns, file electronically, and choose direct deposit (vs check) for the refund.
Now if you have already filed and you are wondering where your money is, the IRS has a site you can go to and check. You will need your social security number, filing status, and the exact refund amount. Below is the link, simply click “Check My Refund Status” once on the site.
You can also download the IRS2Go official mobile app for the IRS.
Some information about this site:
- It will generally update 24 hours after e-filing or 4 weeks after you have mailed your return.
- Updates to the site are made daily, usually overnight.
- Most refunds are issued in less than 21 days unless you have some specific credits.
- The IRS tool follows your tax return from receipt to completion giving updates.
- If it is showing as received it means that the IRS has your return and they are still processing it.
- If it is showing as approved it means that the IRS has approved your refund and are preparing it to be sent.
- If is is showing as sent it means the the IRS has sent your refund. Be patient and you should see your refund shortly.
- As a last resort you can always try calling the IRS to see if you can get further information, although they always recommend checking the site first.
- IRS Refund Hotline: 800-829-1954
- IRS Line for Individuals: 800-829-1040
Most state sites will have something similar so you can likely do a Google search for your state to find the specific area to check the status.
Final part here. Since COVID started, the IRS has been hit extremely hard when it comes to staffing and backlog. Expect delays in refunds, expect delays in phone calls.
What Is a Tax Refund?
This may seem like a simple question but there is often times confusion around it so we want to break it down further.
Simple Terms: A tax refund is an overpayment of taxes that are being returned to the tax payer.
So many people judge how much they pay in taxes based on their refund. You hear things like “I got a big refund this year so that means I saved a lot in taxes” or “Last year I got a bigger refund, what did you miss?” or even “I don’t need to save on taxes because I get a refund every year.”
The US is a pay as you earn tax system so you owe taxes as you make it. If you are a W2 employee you’ll see this in your paycheck because your employer is already taking taxes out for you. If you are a business owner you may be paying in quarterly estimated taxes.
At the end of the year when we file a tax return we are simply during a reconciliation of that. We are recording the income we have from various sources along with deductions, credits, and the tax payments made throughout the year. At the end you will then have either a tax refund or an amount due.
A tax refund means that you paid too much in taxes throughout the year and an amount due simply means you did not pay enough and now you owe the remaining.
My goal with this is simply to change your way of thinking. Tax refund or not has nothing to do with how much you are saving in taxes. Lets look at two hypothetical examples:
- Example Business Owner #1
- Business Profit: $80,000
- Federal Tax: $20,000
- Estimated Payments: $25,000
- Tax REFUND: $5,000
- Example Business Owner #2
- Business Profit: $80,000
- Federal Tax: $20,000
- Estimated Payments: $10,000
- Tax OWED: $10,000
In these examples, business owner #1 got a refund of $5,000 and business owner #2 owed an additional $10,000 when filing his return. However, if you look at the numbers, BOTH tax payers paid the same amount in taxes.
We use this as an example simply to show that your refund (or lack thereof) is not a tool that you should be using to measure how much total tax you paid or how much you saved by doing tax planning.
We had a member in our Tax Minimization Program that share a story about how last year they got a tax refund of $35k. This year after going through our program and implementing the strategies discussed they said they owed $16k. Now some might look at the refund piece alone and say they would have been better of not tax planning.
However, in reality they went from paying a total tax of last year of $85k to only paying $16k in total tax this year. This is a great example of how your refund is not a tool to determine your tax savings.
Tax Refund Summary
- Check the IRS website or mobile app regarding your refund status before trying to call them.
- A tax refund means that you paid too much in taxes throughout the year the government agency is returning that money to you.
- Stop judging the amount of taxes you paid or your tax savings based on the size of your refund!