For some the only bright side of filing returns is getting back their refunds. Tax refund scheme acts as incentive for many and inspires them to file their taxes on time. While for other refunds are seen as their compulsory savings which can be utilized by them when they receive these refunds from the tax authorities. Whichever way you look at it these refunds are always welcomed by taxpayers if not eager awaited. Further here we will discuss in and out of these refunds.
What is the mechanism of Tax Refunds? At the first instance many taxpayers are not able to understand why we need to pay more taxes to the government and then wait to get them back. Why can’t be just pay exactly what is due? There is a system through which every month your employer withholds certain amount of from your salary and deposits it with IRS as your withholding tax. As every employee adopts their respective mechanisms of saving taxes it becomes impossible for the employer to predict their saving pattern. Hence employer continues to deduct certain percentage of your salary every month for all the employees. At the year end each one of the employees file different tax returns in which they qualify and claim different set rebates which decides their final tax liability. If your employer has withheld more tax then your final tax liability you become eligible for tax refunds and receive the differential amount from the IRS.
How to claim your Tax refunds? At the end of the financial year you are provided form W2 from your employer which has all the details pertaining to your income and deductions for the year. The deductions also include the amount employer has deducted and deposited on your behalf with the tax authorities as your withholding tax. Each year before 15th April one has to file their annual statement of income and deductions to the IRS in form of Income Tax Return. This is the final document that decides the actual amount of tax liability of a taxpayer during a tax season. Any excess of withheld tax on your behalf is clearly calculated and mentioned in your tax return. The taxpayers those who have filed paper return get refunds in form of cheques through post on their registered addresses within few months of filing their return. For those who have e-filed their returns with an option of direct deposit can get the refunds directly deposited in their respective bank accounts within 10 days of their return being processed by IRS.