What is a Refund
A refund is a payment from the state or federal government taxing authority to reimburse an individual for overpaid taxes. Businesses and merchants also issue refunds to customers in exchange for the return of purchased goods and when services are unsatisfactory or unfulfilled.
BREAKING DOWN Refund
The Internal Revenue Service (IRS) is the most widely known issuer of tax refunds. As of April 21, 2017, the IRS disbursed approximately $268 billion in refunds for the 2016 tax year. The average amount of a refund in 2016 is $2,763. Regarding direct deposits, the agency disbursed nearly 81 million refunds directly to bank accounts totaling approximately $239.4 billion and with the average direct-deposited refund equaling $2,932. The IRS issues refunds on a regular basis throughout the year.
IRS Refund Schedules
According to the IRS, 90%, or 9 out of every 10, electronically filed tax returns process within 21 days from the e-file acceptance date. Mailed paper returns usually process within 6 to 8 weeks from the date received. On December 18, 2015, Congress enacted the Protecting Americans from Tax Hikes (PATH) Act. The act requires that the IRS not issue refunds for tax returns which include the Earned Income Credit or Additional Child Tax Credit until February 15. For some taxpayers, this Act extends the time between submitting a return and the processing of their refund.
Using the "Where's My Refund" tool on the IRS website, a taxpayer may check the status of their refund. Users input their Social Security number or tax identification number (TIN), filing status, and the exact amount of the expected refund to retrieve their status, which is typically updated once per day.
State Income Taxes
State taxing authorities also issue refunds. Most states also have a system which allows taxpayers to verify the status of their refunds.
Seven states (AK, FL, NV, SD, TX, WA, and WY) do not have state income taxes. Residents of these seven states do not need to file state tax returns. However, they are still responsible to file a federal tax return. As of 2018, two states, New Hampshire and Tennessee, do not assess taxes on wage income. Both states tax investment income and dividend income.
Each state regulates the form and amount of business, or corporate, income tax. Some states tax gross receipts and others will tax business income. According to the Tax Foundation, an independent tax policy non-profit, 2017 state business rates are between 3 and 12 percent.
Refunds for Goods and Services
Companies may issue refunds to customers based on their return policy. Although rare, some businesses have liberal return policies which allow customers to return purchased goods at any time for a full refund, with or without a receipt.Typically, e-commerce businesses wait until the returned product is received before they will issue a refund. Companies create return policies that strike a balance between excellent customer service and not compromising company's profitability. Service providers may allow partial or full refunds for unsatisfactory or unfulfilled services.