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Understanding what it means to get a refund from the IRS

| Jan 1, 2020 | Internal Revenue Service

Now that the holidays are over, many Boston residents are looking forward to filing their federal income tax returns in order to get the refund that will pay for their gift purchases and maybe more. Considering the fact that the average refund the IRS sent out for the 2018 tax year was $2,725, it is easy to see why they are excited. However, if they really understood what it means to get a refund, that perspective may change.

recent survey involving 1,000 people done by Credit Karma revealed that only about half understood they received that payment as a reimbursement of money already paid to the government. The other half thought they received “free” money from the government and not money they already paid into the system during the course of the previous year. Taxpayers who receive refunds essentially provided the federal government with an interest free loan.

The taxpayer received no benefit from that loan other than getting the money back through an income tax refund. Of course, some Boston residents do understand why they are getting a refund and are okay with it. They like receiving that big check each year instead of having a bit of extra money in each paycheck.

What most taxpayers may not understand is that it may be possible to make adjustments to their tax situation in order to meet their goals. This is done through their withholding. Getting it right could require more than just punching some numbers into the tax withholding estimator the IRS provides. It would probably be worthwhile to consult with an experienced tax attorney in order help ensure everything is done correctly.

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