Tax Refunds: Seven Things You Should Know

By Robert Steere, Toolkit Staff Writer

Are you expecting an income tax refund from the IRS this year? A refund can result from any number of factors. Perhaps excess taxes were withheld from your paychecks? Maybe you qualify for a reimbursable tax credit such as the American Opportunity credit (for college tuition), the First-time Homebuyer Credit, the Making Work Pay credit (for earned income), or the Earned Income Credit (for low-income earners)? Or perhaps you ended the year with a net operating loss after paying estimated taxes during the year?

In any event, if you are eligible for a refund, you should know how the refund process works, and how you can make sure you receive your refund as quickly as possible. Here are seven pointers for you on how to handle your request for refund and what to expect from the IRS.

1. Refund Options. You can instruct the IRS to handle your refund in one or more of several different ways. First--and fastest and simplest--you can have IRS issue your refund by direct deposit into your bank account. Second, you can have your refund issued as a paper check that IRS will mail to you. Third, you can now use part of your refund to buy up to $5,000 in U.S. Series I savings bonds in multiples of $50. And, finally, you can instruct the IRS to keep all or a portion of your refund and apply it toward your estimated taxes for next year.

2. Direct Deposit into Multiple Accounts. If you want portions of your refund deposited in more than one bank account, the IRS will do it for you. You can use Form 8888, Direct Deposit of Refund to More Than One Account, to request that your refund be allocated by direct deposit among up to three separate accounts, such as checking or savings or retirement accounts. You must also use this form to request that a portion of your refund be applied to the purchase of U.S Savings Bonds.

3. Refunds Come Faster When You E-file. If you file a complete and accurate paper tax return, your refund will usually be issued within six weeks from the date it is received. But, if you file your return electronically, your refund will normally be issued within three weeks after the date it is received. In short, e-filing results in getting your refund faster. Moreover, if you request direct deposit of your refund, it will be faster still. Issuance of a refund check takes longer than the direct deposit. So why wait?

4. Check Your Refund Status Online or by Phone. The fastest and easiest way to find out about your current year refund is to go to the IRS website and click the "Where's My Refund?" link at the home page. You can also check the status of your refund by calling the IRS Refund Hotline at 800-829-1954. Whether you check the status online or by phone, you will need to provide your Social Security number, filing status and the exact whole dollar amount of your refund shown on your return in order to obtain assistance.

5. Refund Delays Sometimes Happen. Several different factors can cause delays in processing refunds, but the most common ones tend to be errors on tax returns. Some of the most common errors that result in processing delays are:

• Incorrect or missing Social Security numbers on the tax return;
• Incorrect tax amount entered on the return because of a mistake applying the tax tables to the taxable income and filing status or because of miscalculation using tax rate schedules;
• Computation errors in figuring taxable income, withholding and estimated tax payments, earned income credit, child and dependent care credits (and missing or incorrect identification numbers for child care providers), or other credits;
• Withholding and estimated tax payments entered on the wrong line of the return; and
• Math errors of all kinds--addition, subtraction, multiplication and division.

As you can see, simply reviewing your tax return for errors before filing can save you from delays in the processing of your return. Check Tax Topic 303 on the IRS website for a checklist of common tax return preparation errors you should avoid.

6. Refund Amounts Don't Always Meet Expectations. It may not happen often, but sometimes a taxpayer receives an unexpectedly large refund (to which he or she may or may not be entitled). If you are surprised by an unexpectedly large refund, you may want to delay depositing or cashing the check until you receive an IRS notice that explains the difference between the amount you received and the amount you expected. Follow the instructions on the notice. If you get no notice, you may want to contact the IRS for clarification before spending your "windfall." On the other hand, if you receive a smaller refund than you anticipated, you may still want to go ahead and cash the check. If it is later determined that you should have received more, you will receive an additional check for the difference. If you did not receive a notice and you have questions about the amount of your refund, wait two weeks after receiving the refund, then call 800-829-1040.

7. Follow-Up on Missing Refunds. Every year, a small number of refunds go missing or are undeliverable because of address changes. The IRS will assist you in obtaining a replacement check for a refund check that is verified as lost or stolen. If the IRS was unable to deliver your refund because you moved, you can change your address online. Once your address has been changed, the IRS can reissue the undelivered check.

For more information, visit the IRS website or call the IRS at 800-829-1040.

Posted April 9, 2010.