Do you get a tax refund or do you owe the IRS? 32% of Americans don’t know
This year’s tax season has proven to be complicated – the US bailout plan made changes in the mid-season, and the IRS moved the filing deadline for individual returns from April 15 to May 17.
Although most Americans have extra time to file, 32% of taxpayers are still unsure whether they will get money back or owe the IRS, according to a recent survey by NORC at the University of Chicago.
The survey interviewed 1,076 adults online and by phone from February 25 to March 1.
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“Complexity just continues to unfold,” said Angela Fontes, vice president of the Department of Economics, Justice and Society at NORC at the University of Chicago. “It means to me that there are many people out there who may have had extenuating circumstances who make it so that they are not sure they will get this refund.”
Why you’re getting a refund
Most Americans actually get a refund from the IRS after filing their tax returns. In 2020, nearly 170 million people filed tax returns, including traditional non-claimants, submitting information to get their economic impact payments. That year, the IRS issued nearly 126 million refunds, which is roughly 74% of all applicants.
The average refund for 2020 was $ 2,549, roughly $ 321 less than the average refund for 2019 of $ 2,870. That year, by March 19, the IRS had received approximately 76 million individual tax returns and issued nearly 50 million refunds. The average refund size so far is $ 2,929, according to the agency.
Taxpayers receive refunds from the IRS if they overpay the taxes they owe on their gross annual adjusted income. This generally happens because employers withhold more than necessary to pay taxes from their employees’ paychecks. At the end of the year when taxpayers file, the IRS cuts them off a check for the amount they overpaid.
On the flip side, people can owe the IRS money at the end of the year if they have underpaid their taxes on their earnings. This can happen when someone has picked the wrong amount of source, is not putting money aside for outside employment or gig work, and is not making estimated tax payments year-round.
This year, the pandemic created additional confusion for taxpayers. Millions of people who lost their jobs due to Covid found at the start of the registration season that unemployment income was taxable and could become a tax burden if it wasn’t withheld year round.
Then the American bailout plan passed, making the first $ 10,200 unemployment income tax-free for those with adjusted gross income less than $ 150,000 in 2020 (the amount is $ 20,400 for married couples who combined with one Submit income less than $ 150,000).
In addition, anyone who started gig work or started a side business in the past year may have a different login process than they are used to. Evidence of a surge in trade could make some tax returns more complex – other income like selling stocks or other investments like cryptocurrency must be reported to the IRS and will be taxed.
How To Find Out If You Owe The IRS
If you’re not sure whether you will owe the IRS or get money back at the end of the year, there is a pretty easy way to find out, according to Anjali Jariwala, Certified Financial Planner, CPA, and Founder of FIT Advisors in Torrance, California.
The IRS has a calculator that taxpayers can use to enter their credentials, including the amount of work they do, expected earnings, possible deductions, and the credits they might receive.
The calculator then estimates whether you are likely to get a refund or owe the IRS.
“It’s especially helpful to put your numbers in when you’re getting large bonuses or other sources of income that may not have been expected,” Jariwala said.
Throughout the year, people should also check their paychecks to make sure their employer is correctly withholding some of their income for taxes, said Fontes of the University of Chicago.
In addition, taxpayers should keep all income records such as 1099s, pay slips, and other forms to prove what they have earned. Comparing this information to a previous tax return can also help people assess whether they might get a refund or owe something to the IRS, Fontes said.
Of course, for those with more complex tax returns, Jariwala and Fontes recommend seeking professional help to ensure that you are paying your taxes correctly.
“If you’re a business owner, 1099 [filer] If you have any other tax complexities you should really be using a CPA and having projections done year round, ”Jariwala said.
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