Every year the IRS supplies taxpayers with billions of dollars in the form of tax refunds. The refund is awarded based on an individuals or business’s tax return and is distributed via direct deposit or paper check. Unbeknown to many, the majority of tax returns filed are met with a refund (on average over 75% annually), as oppose to a levy.
Tax refunds awarded by the IRS offer individuals an opportunity to save their money or redistribute it for necessary items. Individual tax payers can accrue a tax refund from the IRS in a variety of ways, some of which are distributed nationally in the form of a tax credit, others which arise from a withholding of wages or write-offs.
The most common form of tax refund arises when the IRS or federal government withholds more taxes on an individuals earnings than he/she owes to the government. The federal income tax levy is based on a calendar year, however, after each pay period both federal and state governments will withhold earnings in the form of taxation.
When the year ends, the individual taxpayer will file his/her income taxes by submitting the proper filing forms found on the IRS website, www.IRS.gov. In many instances, an individual throughout the course of a fiscal year will overpay his/her tax rate based on the levy from the pay period. When this overpayment occurs, the IRS will issue checks or a direct deposit for the overpaid balance. The amount sent from the IRS to the individual or business is known as a tax refund.
The government throughout the course of the year withholds taxes as a means to obtain an interest-free loan. To refund the principle of the loan, the government supplies a reimbursement at the end of the taxing period.
Tax refunds allow the government to borrow interest-free from working Americans throughout the year, while offering those same individuals a form of savings that will be returned risk-free when income taxes are filed. An individual has the opportunity to control the amount of tax refund by choosing the amount of wages they wish to be withheld each tax period.
In addition to withholding income, the federal government will also award a tax refund through special exemptions or mechanisms used to boost the nation’s markets. Tax credits, depending on the economy or President in office, will vary in terms of eligibility and amount, based on year. Eligible for 2009 and 2010, The Earned Income Tax Credit is a refundable example of a tax credit, which is awarded to individuals who earn a low yearly income.
The purpose of tax credits is to offset the burden of taxation and encourage citizens to entrust the economy through consumption or investment. The Earned Income Tax Credit is a popular example of an IRS refund that supplies individual workers with families with varying reimbursements.
Under the EITC, an individual with one qualifying child is eligible to receive up to $3,043 a year from the IRS. Similar to the amount of dependents an individual claims on his/her tax return, tax credits such as the EITC will vary based on children present in the claimant’s family.