Tax payers are chalking up significant refunds so far this year. The Internal Revenue Service has doled out more than 22 million refunds for 2021, with an average refund of $3,536 per filer.
That’s as of Feb. 18. As of Feb. 19 last year, the IRS had given out about 16.6 million refunds, with an average refund of $2,880 per filer. But remember that the tax season began later last year.
It may sound like a good thing when you’re getting a big refund, but it’s really not in many cases. It means you overpaid your taxes in 2021, giving the IRS an interest-free loan. Ideally, you’d want to lower your withholding tax, so that you’re getting no refund.
For last year, that would have meant you were receiving money during 2021, spending, saving or investing it as you see fit, rather than waiting to get it in 2022.
If you can trust yourself with money management and have enough money to spare, you may want to pay the minimum required in withholding/estimated taxes, so you don’t have to pony up until April 15 of the next year.
But do keep in mind that you generally have to pay 100% (110% in some cases) of the prior year’s tax liability or 90% of your current-year liability in withholding/estimated taxes each year.
You can check the status of your refund on the “Where’s My Refund?” page on the IRS web site or by using the IRS2Go app.
Speaking of refunds, TurboTax wrote on TheStreet.com earlier this month that the IRS reports close to $1 billion of unclaimed tax refunds every year.
In most cases, refunds go unclaimed because taxpayers who don’t meet the IRS income threshold required to file a tax return are actually entitled to a tax refund, but as they never file a return, they can’t claim that money.
