DEFINITION of 'Refund'
A refund is a payment from the state or federal government for an individual's overpaid taxes. An income tax refund generally occurs after a person files an income tax return at the beginning of the calendar year. Companies and merchants also issue refunds as part of a return policy that allows customers to return merchandise to the store for a refund of the purchase price.
BREAKING DOWN 'Refund'
Through the weekend of April 29, 2016, the IRS disbursed refunds totaling slightly more than $272 billion for the 2015 tax year. The average amount of a refund was $2,723. In terms of direct deposits, the agency disbursed nearly 83 million refunds directly to bank accounts for a total of $240.2 billion. The average direct deposited refund was $2,894. During the government's entire 2015 fiscal year, the IRS issued more than 119 million refunds totaling $403.3 billion. As a comparison, the agency collected $3.3 trillion in tax receipts during that same span. The IRS issues refunds on a regular basis throughout the year.
According to the IRS, it takes approximately 10 days to issue a refund from a return filed electronically. In the first part of 2016, e-filers who submitted returns on Jan. 19 generally received funds in a bank account Jan. 29. By comparison, the IRS expected paper checks from paper returns to reach taxpayers by March 7 with a filing date of Jan 19.
Taxpayers can check the status of refunds using the Where's My Refund? tool on the IRS website. Users input a Social Security number or tax identification number, filing status and the exact amount of the refund into a secure portion of the IRS Web portal. People can check 24 hours after the agency acknowledges receipt of an e-filed return or four weeks after mailing a return.
State Income Taxes
States that collect income taxes also issue refunds, although amounts and state income tax laws vary by location. Much like with IRS refunds, states allow taxpayers to check on the status of refunds through the agency that collects revenue. As of 2016, nine states do not have a state income tax, including Florida, Nevada, New Hampshire, Texas and Washington.
Companies may issue refunds to customers based on return policies. Businesses with the most liberal return policies allows consumers to return merchandise at any time for a full refund with or without a receipt. E-commerce websites may wait until the merchandise is returned to a physical warehouse before issuing a refund. Companies generally create a return policy that strikes a balance between good customer service and preventing excessive and unnecessary returns that may hurt a firm's bottom line.