About 75% of people who submitted their tax returns for 2010 are expecting to get a, IRS tax refund. The statistics of the percentage is no different from previous years. However, the average amount of tax refunds that the taxpayer gets has been growing steadily over the years. This has grown from the average in 1999 of $1,698.00 to that in 2009 of $3,003.00. This means that the IRS refunds have grown about 100% in only 10 years. There are several explanations for this growth in refund averages, which are listed below:
Changing Perceptions on Refunds
In the past, the idea of overpaying your taxes and waiting for a tax refund was seen as a bad deal, as it meant that you had basically advanced Uncle Sam with an interest-free loan. People worked to match their withholdings to ensure that they got the least possible tax refund. In fact, a survey carried out on the perception of tax refunds on taxpayers revealed that the older taxpayers, aged 50 years and above, still hold this notion and will always work to adjust their withholding to match actual taxes. However, the younger taxpayers seem to have a different attitude towards their tax refunds. Many of them will intentionally overpay their taxes so as to have a larger tax refund. The refund comes more like a bonus and the funds can be used for a specific thing such as set up an emergency fund, make an asset down-payment, or simply saved up for a vacation. Many young tax payers feel that the burdens of bills are high and saving up within the year turns out to be hard work. However, the IRS does the job in piling the overpayment of withholdings and refunding this in one paycheck, which can feel like a lump bonus to the taxpayer. The receiving of a healthy paycheck from the IRS seems preferable over receiving small funds distributed throughout a given tax year. This new trend of viewing tax refunds may have contributed to the increase in amount of tax refunds made.
Poorer Performing Markets
The stock exchange market and interest rates on various investments have performed dismally between 1999 and 2009. In fact, the stock market dipped in 3 of these 10 years and stagnated for the most part of the remaining years. These reduced returns on investments has worked to defer taxpayers from seeking to manage their tax withholdings better since there is nothing much you lose in terms of investment returns by waiting for a tax refund. Therefore, less people are keen to make withholding adjustments.
Job and Investment Losses
During the same period of 1999 to 2009, there have been more people who have lost returns on investments and lost jobs, especially in the 2001 and 2007 economic recessions. Therefore, the growth in refund averages may reflect the deductions on losses, unemployment benefits, and adjustments on reduced incomes.
New Tax Breaks
During the same period, there have been many tax breaks that have been introduced, such as the Bush tax cuts, among other tax credits (some of which were created in efforts to revamp the economy). These breaks include the home-buyer credits, American Opportunity Education credit, and larger child credits. Many people choose to apply these new tax credits in their returns, which leads to higher refund checks.
Cost of Withholding Adjustments
Another reason that could explain the raise in tax refunds is the complex process of calculating and making withholding tax adjustments. You will need to work with 3 worksheets and 2 tax tables on the W-4 to make the correct adjustments on your withholdings. You will then need to forward your W-4 to your employer so as to have them update the changes. Many people find this process a challenge and would rather do nothing about their tax withholdings. However, on the flip side, most tax preparers provide free help in preparing the W-4 to make tax withholding adjustments. You can therefore request the assistance of your tax preparer with your W-4.
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The e-filing service of the IRS is one bit of wonderful news that has come out in recent times. Americans have, for so long, fallen prey to tax refund loans or “instant refund loans,” or “refund anticipation loans.”
Tax Refund Anticipation Loans
Tax refund loans charge from between .95 to .95 plus electronic filing fees, which could cost up to . You can receive the total amount of your refund (usually up to ,000) within one day or two days. The loan is repaid when your tax refund is received in the special bank account set-up by the IRS tax refund lender.
On the other hand, when you choose to file electronically with the IRS and choose direct deposit as a refund option, you can get your refund in as little as ten days. While ten days is still longer than two days, at least you will get your money intact. So, unless if you need the money for an absolute emergency, why not wait ten days to get your money?
In 2008, around 90 million tax returns were filed, comprising almost 58 percent of all tax returns that were filed last year. Nearly 27 million people filed their returns right from their own home, which is an increase of 19 percent from 2007.
This surge in the number of e-filings can be attributed to the number of tax software products available today. Several of these software do not charge fees if you are electronically filing for the first time. The IRS itself also offers free tax preparation with Free File, which can be found on the website IRS.gov. If you are comfortable filling out forms and do not help doing so, you can file your returns now and pay anything you owe later.
Free File is a free federal tax preparation and electronic filing program for taxpayers with an adjusted gross income of ,000 or less. For people in the higher income brackets, they can use the IRS Free File Fillable Forms. While the free forms do not have incorporate an interview process, at least you can fill out your tax forms like you would on paper. Both Free File and the Free File Fillable Forms are only available through the IRS website.
IRS Tax Refunds Vs Income Tax Refund Loans
Find more helpful IRS tax information on http://www.irstaxlawyers.org
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