The tax-filing season officially is underway: The IRS now is accepting 2021 tax returns, and the clock thus is counting down until Tax Day, which this year falls on April 18 for most people.
If you hope to get a tax refund this year — or even if you simply hope to get a bigger refund next year — here are several things you should know.
1. Your refund might be smaller this year
Brace yourself: Due to federal tax law changes for 2021 and other factors specific to the second year of the COVID-19 pandemic, you might receive a smaller refund — or a larger tax bill — in 2022.
This is more likely to happen to taxpayers affected by the changes we reported in “5 Reasons Your Tax Refund Might Be Smaller This Year.”
2. Electronic filing and direct deposit speed your refund
Filing your tax return electronically and opting to receive your refund via direct deposit into your bank account — rather than, say, via mailed check — is the best way to speed your refund, according to the IRS. Most people receive their refunds in less than 21 days this way.
Filing electronically also is the best way to minimize errors, which in themselves can delay your refund. The IRS explains:
“Although most refunds are delivered in 21 days, it could take longer if the tax return includes errors, is incomplete or requires further security review. Paper-filed tax returns and paper refund checks will take even longer this year.”
3. Filing early helps keep crooks’ hands off your refund
Filing your taxes early on in the season helps keep criminals from exploiting your tax information for their own gain.
As we explain in “Beware These 6 Income Tax Scams,” thieves who get hold of your personal information can then turn around and file a tax return in your name:
“They use your name, address, Social Security number and other personal data to fill out and file a fake tax return in your name. Then, they get a big refund. Meanwhile, the IRS rejects your actual return because the agency thinks you already filed.”
The earlier in the tax-filing season that you file your return, the less time crooks have to pull off such a scheme.
4. Rushing your return can slow your refund
While it’s smart to file your tax return sooner rather than later, there is such a thing as filing too soon.
The IRS urges taxpayers to have all their 2021 tax documents, such as Form W-2, in hand before filing their return. This will help avoid errors and thus avoid refund delays.
Other types of tax documents you need in hand before filing might include:
- Form 1099-INT (for interest income)
- Form SSA-1099 (annual Social Security benefit statement)
- Form 1099-R (for numerous types of retirement income)
5. Claiming certain tax credits can slow your refund
If you claim the earned income tax credit or the additional child tax credit, the IRS won’t issue your refund before mid-February. This is required by law and designed to prevent fraudulent refunds.
6. You can split your refund between multiple accounts
Another benefit of receiving your refund by direct deposit is that you can choose between having the entire amount sent to one account or having it split up between two or three. These can be bank accounts or individual retirement accounts.
So, you could have a portion of your refund deposited into your checking account, another portion into your savings account and the rest into your IRA, for example.
Breaking up your refund is easiest if you use tax software or tell your tax professional, but you also can do it on paper using Form 8888.
7. You can use your refund to buy savings bonds currently paying 7.12%
In addition to splitting your refund between multiple accounts, Uncle Sam gives you the option to use all or part of your refund to buy U.S. savings bonds. Specifically, you can buy up to $5,000 worth of Series I savings bonds with your tax refund.
Due to high inflation, these bonds happen to be a decent investment right now, as we reported in “This Risk-Free Bond Now Pays 7.12%.”
Using all or part of your refund to buy savings bonds is easiest if you use tax software or tell your tax professional, but you also can do it on paper using Form 8888.
8. This year, you may be able to use your 2019 income to fatten your refund
A recent temporary change allows taxpayers to use their 2019 earned income, rather than their 2021 earned income, to determine if they qualify for the earned income tax credit and, if so, to calculate how much the credit is worth for them this year.
The IRS describes the earned income tax credit as “the federal government’s largest refundable federal income tax credit for low- to moderate-income workers.”
Allowing these workers to use their 2019 earned income to calculate the credit this year means more stand to benefit from the credit. The IRS explains:
“To qualify for the EITC, people must have earned income through employment or other sources, so this option may help workers get a larger credit if they earned less in 2021 or received unemployment income instead of their regular wages. See the instructions for Form 1040, line 27c”
Because the earned income tax credit is refundable, eligible taxpayers receive the full amount of the credit that they qualify for in their refund, even if they don’t owe taxes.
9. You can check the status of your refund online
Generally, refund information will be available via the online tool and mobile app within 24 hours of the IRS acknowledging receipt of an electronically filed tax return, the IRS says. If you file a paper tax return, don’t expect to find your refund information online until about four weeks after you mailed the return.
10. It might be time to adjust your withholding
If you are disappointed by this year’s tax refund — or even worse, if you find that you owe money — you can avoid a similar fate next year by adjusting your withholding now.
Having more money taken out of your paycheck — or even your retirement income — for taxes throughout the year will mean you are less likely to owe money to Uncle Sam at tax time, and more likely to get a refund.
Of course, getting a refund is not necessarily a good thing. It means you effectively gave an interest-free loan to the government.
That is another reason why adjusting your withholding now is smart. You can do this online using the IRS’ free Tax Withholding Estimator tool.
If you decide to adjust the withholding from your:
- Paycheck, fill out a new Form W-4 to give your employer.
- Social Security benefits, use Form W-4V as we detail in “An Easy Way to Avoid a Tax Day Bill on Your Social Security Income.”
- Pension, annuity or certain other types of deferred compensation, use Form W-4P.
11. You can make your refund more valuable
Like any windfall, a tax refund could be worth more than its face value — if you put it to use in a way that saves you money or builds your wealth.
If you don’t want to invest it in U.S. savings bonds, you can find more options in “6 Ways to Use Your Tax Refund to Become Richer.”