Tax refunds aren’t exactly a great thing for most people. They’re like giving the government a free loan.
This year, tax payers have received a lot of refunds. More than 22 million refunds have been issued by the Internal Revenue Service in 2021, with an average refund of $3,536 per filer.
As of February 18, that’s what we have. According to the Kansas, 16.6 million refunds had been issued by Feb. 19 last year, with an average refund of $2,880 per filer. The tax season started later last year, though.
When you’re getting a big refund, it may sound like a good thing, but it’s not always the case. In essence, you gave the IRS an interest-free loan in 2021 by overpaying your taxes. In an ideal world, you would want to lower your withholding tax to not receive a refund.
Rather than waiting until 2022 to get the money, you would have received it in 2021 and spent, saved, or invested it as you saw fit.
In order to avoid having to pony up until April 15 of the next year, you may want to pay the minimum required in withholding/estimated taxes if you have enough money to spare.
You generally have to withhold and estimate 90% of your current-year tax liability or 100% of your prior-year’s tax liability.
Speaking of refunds, TurboTax wrote on TheStreet.com recently that the IRS estimates there are close to $1 billion in unclaimed refunds every year.
The IRS claims that taxpayers who do not meet the income threshold are entitled to a tax refund, so most of them do not claim them. However, they cannot claim that money because they never file a tax return.