When to Anticipate Your Tax Refund

The 2021 tax season kicked off around two weeks later than normal this year, due to recent changes in the federal tax law. However, the delay shouldn’t affect when your tax refund will arrive. The majority of taxpayers should get their tax refund within 21 days after filing. The Internal Revenue Service (IRS) said it expects to deliver the first round of refunds during the first week of March, which is the same time frame as if filing season had opened in January.

While it’s impossible to predict the exact day your tax refund will arrive, there are some factors that can influence your time line.

Key Takeaways

  • You may receive a refund if you overpaid your 2020 income taxes or if you claimed a nonrefundable income tax credit.
  • Taxpayers who file electronically and request direct deposit will receive their refunds first.
  • The IRS offers a tool that allows you to track and view the current status of your refund.

How Tax Refunds Work

A tax refund is a reimbursement for excess taxes paid during the year.  Most workers prepay their federal income taxes through their paycheck or by filing quarterly estimated taxes.

Employees are required to fill out a Form W-4 (Employee’s Withholding Certificate) when they begin working at a company. The information entered on an employee’s Form W-4 will determine how much their employer will withhold for their pay to cover federal income taxes. If the employer withholds too much, the taxpayer may receive a tax refund. If you come up short, you will owe taxes.

Contract workers are considered both an employee and an employer. They do not complete a Form W-4; instead, they are required to pay their own taxes on a quarterly basis. Estimated tax payments for 2021 are due April 15, 2021; June 15, 2021; Sept. 15, 2021; and Jan. 18, 2022. (It’s Jan. 18, not Jan. 15, because the latter is a Saturday, which is not a business day, and Mon., Jan.17, is Martin Luther King Jr. Day, a federal holiday.) This is true, even though the tax filing deadline for 2020 individual income taxes was moved to May 17, 2021.

You may also receive a tax refund if you claim a refundable tax credit, such as the Earned Income Tax Credit (EITC). Most federal income tax credits are nonrefundable and will only reduce the amount you owe in taxes. However, if you claim a refundable tax credit that is greater than the amount you owe, you will receive the difference as a tax refund.

Though the IRS has extended the 2021 deadline for filing and paying 2020 taxes to May 17 due to the COVID-19 pandemic, estimated tax payments for 2021 taxes are still due on April 15.

Factors That Can Affect Timing

Taxpayers can choose how they submit their tax return and want to receive their refund. How you choose to file your taxes will determine how quickly your return is processed.

The IRS encourages taxpayers to file their return electronically and elect to receive their refund via direct deposit. By doing so, you will likely get your refund faster than someone who submits a return by mail and requests a paper check. This is especially true for the 2021 tax season, as both the IRS and the U.S. Postal Service have been experiencing delays due to COVID-19. (One filer known to Investopedia submitted a 2019 return by mail on July 8, 2020, a week prior to the COVID-extended July 15 deadline, and did not receive their tax refund check until Feb. 18, 2021.)

In some cases you may receive your refund as a paper check even if you requested direct deposit. According to the IRS, this could happen if:

  • You request the refund to be deposited electronically into an account owned by someone other than you or your spouse
  • Your bank rejects the transaction
  • You request more than three electronic refunds to be deposited into a single bank account

(This also happened to the filer mentioned above, who requested direct deposit. The reason, according to the IRS, was that “we can’t honor requests for direct deposit of refunds for prior years.” As it was a refund for 2019 taxes paid in 2021, the IRS had to send a check, even though the delay was the IRS’s own and not the filer’s.)

Your tax refund may be delayed if your return is incomplete, includes errors, was affected by fraud or identity theft, or if it requires further review. There are also specific items that can hold up your refund. For example, tax returns that include Form 8379, Injured Spouse Allocation may take up to 14 weeks to process.

If you claim certain tax credits, the earliest you will receive your tax refund is the first week of March. Under the Protecting Americans from Tax Hikes (PATH) Act of 2015, the IRS is prohibited from issuing refunds before mid-February for taxpayers who claim the EITC or the Additional Child Tax Credit (ACTC).

How to Track Your Tax Refund

The IRS offers a Where’s My Refund tool that can provide the status of your return if you haven’t received it. You can access your refund information with the tool within one day of filing electronically or about a month after you send your return by mail.

The Where’s My Refund tool is updated daily and can be found on irs.gov or the IRS2Go app. To use the tool, you must provide your Social Security number or individual taxpayer identification number (ITIN), your tax filing status, and your exact refund amount. The tool will identify which stage your refund is currently in: Return Received, Refund Approved, Refund Sent, or another explanation of what is happening.

(There can be substantial delays in a return being marked “received.” Though the above-mentioned filer’s taxes were delivered on July 16, 2020, according to the U.S. Post Office tracking service, the return was not marked as “received” until mid-December 2020. Prior to that it was listed as simply status “unknown.”)

Once you see that your tax refund is approved, it will likely be a few more days until it shows as “sent.” From this point it should take about five days for your refund to arrive electronically or several weeks to arrive by mail.

You should only contact the IRS directly about the status of your tax refund if:

  • It’s been at least three weeks since you filed your return electronically.
  • You sent your return by mail more than six weeks ago.
  • You were instructed to contact the IRS when using the Where’s My Refund? tool.

COVID-19 has also affected this rule. As of Feb. 25, 2021, the IRS website tells all paper filers not to call at all because “it’s taking us longer to process mailed documents.” It does, however, reassure filers that “we are processing all mail in the order we received it.”

Best Ways to Spend Your Tax Refund

If you’re expecting a tax refund this year, you’ll want to spend it wisely. Here are some ways to put the money to good use.  

  • Pay down credit cards—Carrying a balance on credit cards can hurt your credit score and may prevent you from qualifying for a mortgage or other loan. Paying off your debt early can help improve your credit score and save you money on interest.
  • Save for an emergency—Experts recommend having three to six months’ worth of savings held in an emergency fund. That way you’ll be covered in the event of a job loss or other unexpected financial hardship.
  • Save for retirement—In 2021 individuals may contribute up to $6,000 to a traditional or Roth individual retirement account (IRA). Taxpayers who are age 50 or older may contribute an additional $1,000. Both types of accounts offer tax benefits to help grow your savings. 
  • Save for college—If you have children or grandchildren, consider putting money away in 529 college savings plan. Your investment grows tax deferred, and withdrawals used to pay for college are tax free. Each dollar you save will reduce the amount the child has to borrow in student loans.

The Bottom Line

To ensure a quick turnaround with your tax refund, be sure to file electronically and request direct deposit. Mailing your tax return the old-fashioned way can result in unnecessary, inconvenient, and substantial delays. The sooner you can get your refund, the sooner you can start investing it.

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