Advertiser Disclosure

Tax

How Soon Do You Get Your Tax Refund?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

iStock

One of the few silver linings of tax season is the potential to get a tax refund, which can be a much-welcomed infusion of cash that can be used to pay off debt, replenish savings or reach other financial goals. In a recent study of the tax period from 2013 to 2017, we found 77% of taxpayers in the largest 100 metros received a tax refund and the average refund was $3,016.

If you’re wondering how long it will take for your tax refund to hit your bank account, the answer is fairly straightforward.

  • If you e-file and choose to have your refund deposited directly, the majority of taxpayers receive their refunds within 21 days of submitting their returns to the IRS, according to the agency.
  • If you choose to file your taxes by mail, it can take six to eight weeks to receive your tax refund.

But the method you use to file your taxes isn’t the only factor that determines when that cash will hit your bank account. Read on to discover how you need to do your taxes this year to get your refund as quickly as possible.

How to get your tax refund quickly

The speed with which you’ll receive your tax refund largely depends on three choices you made when filing your taxes: how you file your returns, how you request to receive your refund and what credits you claim.

Choose e-file for the quickest tax refund

Although some 88% of taxpayers last year filed online, some Americans prefer filling out their tax returns on paper and sending them to the IRS via mail. Since the government can’t begin working on your refund until it receives your return, it’s in your best interest to make sure Uncle Sam gets the paperwork as soon as possible.

Depending on how you choose to receive your return (more on that below), filing your returns via mail will have you waiting six to eight weeks for your returns. You can cut that timeline in half by e-filing.

Filing your taxes electronically doesn’t necessitate purchasing a tax-preparation software. If your income is $66,000 or below, the IRS offers its own tax-prep software for free, and if you earn more, the government still offers electronic versions of all the forms you need. Simply fill them out yourself and file electronically (more info can be found in the IRS’s guide).

Check out our round-up of the Best Tax Software in 2019 here, which has a handy list of free options, as well as recommendations for small business owners and the self-employed.

Choose to receive your refund via direct deposit

If the IRS has to mail your refund check to you, it could take more than a month to reach you.

The IRS encourages filers to request their tax refund via direct deposit into a bank account in order to minimize the wait time.

If you e-file and choose direct deposit, you will likely get your refund within that 21-day window. However, it may take up to five additional days for your bank to deposit that money in your account(s).

You can give the IRS the account and routing number for up to three accounts when you file (or when prompted by tax preparation software), and the IRS will provide your refund to your bank.

Reasons your tax refund might be delayed

There were errors in your tax return

When it comes to filling out your returns, little mistakes can lead to major delays. Misspelling names, inputting the wrong social security number or choosing the wrong filing status are all examples of errors that can cause the IRS to delay processing your return, which in turn delays your refund. If this happens, you’ll likely get a call from the IRS asking for the correct information.

Of course one of the easiest places for an error to occur is with your math, particularly if you are filling out your returns without the aid of tax software or a tax professional. If you majored in comparative literature and don’t engage in any math more complicated than calculating the tip, you may want to double (and then triple) check your calculations.

Your direct deposit information was incorrect

To avoid any delays in processing your tax refund, you need to make sure the direct deposit account is either in your name, your spouse’s name or a joint account shared between you. Also be sure the account and routing numbers are correct, otherwise you’ll have to wait for the IRS to be alerted that an error exists and then mail you the refund by paper check—a delay that can take several weeks.

You claimed certain tax credits

If you haven’t received your refund in your bank account and wonder what’s the holdup, it could be because you claimed either the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC).

Because of the Protecting Americans from Tax Hikes (PATH) Act, the IRS can’t issue refunds to anyone who claimed either of these credits before the middle of February 2019. The earliest the agency expects anyone claiming these credits will see their refunds in their bank accounts is Feb. 27, 2019, meaning early filers this year may have to wait longer than usually to get their refund.

The Earned Income Tax Credit helps those earning low-to-moderate incomes with a tax credit. For the 2018 tax year, a single person without any qualifying children who earns $15,270 a year or less qualifies for the EITC. More info on qualifications can be found here.

The Additional Child Tax Credit is a credit claimed by taxpayers with qualifying children as their dependents. Typically, the child has to be under the age of 17 at the end of the tax year and live in your household. Under the Tax Cuts and Jobs Act, taxpayers can claim up to $2,000 for each qualifying child. More information about who qualifies can be found here.

Blame the government shutdown? Not so fast.

With the recent government shutdown, federal agencies like the IRS were hamstrung for more than a month, leading some to worry that the agency would be slower to process returns in 2019. In reality, the impact to tax refund processing should be minimal, the agency says.

The IRS announced at the end of the shutdown that it “will issue refunds as soon as possible and expects many early refunds to be paid in mid- to late February like previous years,” and so far there aren’t any reports of widespread delays. “We haven’t seen anything yet either way,” said James J. Burns, CFP and president of JJ Burns & Company based in Melville, N.Y. “Most people haven’t filed their returns yet.”

How to check the status of your tax refund

The IRS has helpfully provided an online tool, “Where’s My Refund?” that allows you to check your refund status. You can use this tool within 24 hours after IRS receives your electronically-filed returns (or four weeks after you mailed a paper return). Simply provide your social security number (or individual taxpayer identification number), filing status (single, married, etc.) and the exact refund amount, and the tool will give you one of three status updates:

  • Return Received
  • Refund Approved
  • Refund Sent

As soon as your refund clears the “Refund Approved” stage, the IRS should give you a date on when it will issue your refund.

Where should you save your tax refund?

To maximize your refund’s earning power, make sure you’ve got a savings account that earns a competitive interest rate. Here are a couple of great savings accounts available today.

Institution
APY
Minimum Balance to Earn APY
Synchrony Bank
High Yield Savings from Synchrony Bank

2.25%

$0

LEARN MORE Secured

on Synchrony Bank’s secure website

Member FDIC

Advertiser Disclosure.

We'll receive a referral fee if you click here. This does not impact our rankings or recommendations
HSBC Direct
HSBC Direct Savings from HSBC Direct

2.25%

$1

LEARN MORE Secured

on HSBC Direct’s secure website

Member FDIC

Advertiser Disclosure.

We'll receive a referral fee if you click here. This does not impact our rankings or recommendations
Last tax season, Americans received an average refund of $2,899, according to the IRS, and while plenty of people plan on using the cash from a refund to help pay for vacations, trips to the spa, or even day-to-day expenses, a better course of action involves looking at how your refund money can help you achieve your long-term financial goals.

“It’s going to be different for everybody, depending on what their priorities are,” said Joy Liu, financial advisor at The Financial Gym in New York, NY. Liu advocates splitting the refund between paying down any high-interest debt you’re currently carrying and saving it in an online high-yield savings account you can tap in case of emergencies. “It’s going to return a higher yield than traditional banks can offer, so their money starts to make money,” she said.

Liu recommends saving three to six months’ worth of expenses in this account, which you can rely on when the furnace dies in the middle of a polar vortex and you need to pay for repairs or a replacement immediately.

If you feel you have enough money squirreled away to cover emergencies and don’t have any immediate pressing needs for cash, there’s always saving for the future. Putting the money into a Roth or traditional IRA can help you get a jump start on maximizing your contribution for the year, which is like giving the gift of not having to flip burgers to your future self.

The bottom line on your tax refund

If you want to make sure your tax refund gets to your bank account as quickly as possible, make sure to file return electronically and ask to receive your refund via direct deposit. You should receive your refund within 21 days after filing. Once you receive your refund, consider investing in your future by saving the money in a high-yield savings account offered by an online bank and congratulate yourself on surviving another tax season.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

James Ellis
James Ellis |

James Ellis is a writer at MagnifyMoney. You can email James here

TAGS:

Advertiser Disclosure

Tax

Are Scholarships Taxable? Here’s Everything You Need to Know

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

iStock

The cost of higher education can be astronomical for many students, and while there are many ways to pay for college, scholarships and grants are two of the best ways to make it more affordable. If you are awarded a scholarship, whether it’s merit-based or need-based, congratulations! However, the next thing to consider after receiving a grant is your tax liability on the money — not as much fun but nonetheless important.

Some scholarships and fellowships are tax-free, but some are subject to income taxes. We’ll walk you through the ins and outs of scholarship taxation and how to pay taxes on grants that are taxable.

When scholarships are not taxable

There are fellowship or scholarship grants that are tax-free, according to the IRS, and you don’t need to report them as a source of income, when you meet both of the conditions below:

  • You are studying toward a degree at a higher education institution.
  • All the funds you receive are used for qualified education expenses: You either use the money to pay tuition and fees required for enrollment or attendance at the college or university, or cover course-related expenses, such as textbooks, supplies and equipment.

For example, if you receive a $10,000 scholarship and pay it toward the $20,000 tuition, then you won’t owe taxes on the money. However, if your scholarship is $30,000 and you use $20,000 for tuition and cover your rent with $10,000, that $10,000 is taxable income.

Some other types of grants, such as Fulbright grants and need-based grants like a Pell Grant, are also treated as scholarship funds for purposes of determining their tax treatment: They are tax-free if grantees use them to cover qualified education expenses during the time when a grant is awarded.

April Walker, lead manager for Tax Practice and Ethics at the American Institute of CPAs, told MagnifyMoney that it doesn’t matter if a scholarship is granted by your school or sent to you directly from an organization — you follow the same rules above to determine whether it’s taxable or not.

Take a few minutes to complete this IRS questionnaire to determine whether your scholarship money is taxable: Do I Include My Scholarship, Fellowship, or Education Grant as Income on My Tax Return?

When scholarships are taxable

However, grants should be included in your gross income if they are non-qualifying education expenses, meaning they don’t meet the conditions we just talked about.

Using scholarships for incidental expenses

The IRS explains that scholarship or fellowship funds that are used to cover incidental expenses are taxable. Incidental expenses are the money you spend for non-academic activities that are not required as part of your education, such as rent, insurance, transportation and living expenses.

Compensation for services

If students receive a scholarship or fellowship grant that requires them to be a teacher assistant, research assistant or perform other services, the funds are also taxable as salaries. There are exceptions, though. The IRS said grant recipients of the National Health Service Corps Scholarship Program and the Armed Forces Health Professions Scholarship and Financial Assistance Program do not have to include the scholarship funds they receive for service in their gross income.

Similarly, a grant or fellowship awarded to a non-degree-seeking individual to finance a certain research project, a report or a product is taxable, according to tax specialists interviewed by MagnifyMoney. But you could deduct expenses related to the work, such as travel and supplies for research, from your taxable income.

How to pay taxes on scholarships

Students should expect to receive a Form 1098-T that states their tuition and scholarship amounts from their schools by Jan. 31. If your tax-free scholarship or fellowship grant is your only income, you don’t have to file a tax return or report it, however, if part or all of the grant is taxable, then you are required to file a tax return, according to the IRS.

If you file Form 1040, Form 1040A, or Form 1040EZ, include the taxable amount in the total amount reported on the “Wages, salaries, tips” line of your tax return.

If the taxable amount wasn’t reported on Form W-2, enter “SCH” along with the taxable portion in the space to the left of the “Wages, salaries, tips” line. Form W-2 is the form an employer sends to an employee and to the IRS at the end of each year that reports an employee’s annual income and the amount of taxes withheld from their paychecks. Most likely, graduate students who perform teaching or research services at their institutions will receive a W-2.

If you file Form 1040NR or Form 1040NR-EZ, report the taxable amount on the “Scholarship and fellowship grants” line.

Even if you don’t get tax forms, you must pay taxes on your scholarship income that’s subject to income taxes.

In general, the taxable amount of scholarships would be included in the adjusted gross income on the federal return, said Mark Luscombe, principal analyst at Wolters Kluwer Tax & Accounting. But depending on your state of residence and other incomes you have, you may also have to pay state income tax on your scholarship income, Luscombe said. Some states don’t have an income tax. Many states with an income tax use federal Adjusted Gross Income as the starting point in determining their state taxes, Luscombe said, and if your gross income is higher than your state’s income tax base, you will pay state income tax on your scholarship.

How can I minimize my tax burden from scholarships or fellowships?

Tax tips for students

Tax specialists advised if you’re a student, whether you are a dependent on your parent’s tax return or an independent student, you should keep track of the scholarships you receive and your qualified education expenses to make sure you spend as much of your scholarship as possible on qualified education expenses. Keep an eye out for a 1098-T, and in the case of graduate teaching assistants or research assistants, watch out for a Form W-2 at the end of the year.

If your scholarship doesn’t cover all your tuition and fees, Walker suggested you still keep track of your expenses, as some may qualify for education credits, which we will talk about below.

Tax tips for working professionals

For non-degree-seeking individuals who received a grant for an independent research project, Luscombe said they may want to treat the grant as a business income.

If you are running a business on your own, you’re most likely seen as a sole proprietorship owner for tax purposes. You will have to report business-related income and losses on a Schedule C (Form 1040) each year. Luscombe said grant awardees may claim the fellowship activity as a business activity on Schedule C to deduct the related expenses from their taxable income.

Under the new tax law, pass-through business owners can deduct up to 20% of their qualified business income from a partnership, S corporation or sole proprietorship. Individuals earning $157,500 or less ($315,000 for married couples) are eligible for the fullest deduction.

Luscombe advised those who received a one-off grant during the year keep separate records of all the income and expenses related to it.

Education tax credits

If part or all of your — or your child’s or spouse’s — scholarships are taxable, one of the ways for you to offset education expenses is to claim education tax credits, which reduce the amount of your income tax. There are two types of credits available: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).

  • American Opportunity Tax Credit: This credit allows a taxpayer an annual maximum credit of $2,500 per undergraduate student of the costs for school or course-related expenses. Luscombe said AOTC is probably the most generous of tax breaks available for undergraduate education. To qualify for the full credit, your income must be $80,000 or less ($160,000 or less for married filing jointly). The credit is phased out for those whose incomes are above the thresholds.
  • The Lifetime Learning Credit: It allows a taxpayer a credit of up to $2,000 per year per tax return. This credit applies to an eligible student’s costs for undergraduate, graduate or professional degree courses. There’s no limit on the number of years you can claim the credit. You must earn $66,000 or less ($132,000 or less for married filing jointly) to qualify for this credit. The credit is phased out for those whose incomes are above the thresholds.
This interactive worksheet from the IRS can help you answer the following question: Am I Eligible to Claim an Education Credit?

To be eligible for either credit, students should receive a Form 1098-T. You also need to complete the Form 8863 and attach it to your tax Form 1040 or its variations. You cannot claim the credit if you are a dependent on someone’s tax return.

You cannot double dip if you qualify for both credits — you must compare options and choose one or the other. You cannot claim either credit if someone else claims you as a dependent on their tax return.

Tax deductions

If you don’t qualify for either credit, you can look into potential tax deductions to reduce your taxable income. There are two deductions that may be applicable: the Tuition and Fees Deduction and the Student Loan Interest Deduction. You can claim these deductions even if you do not itemize your deductions.

The tuition and fees deduction allows you to deduct qualified higher education expenses of up to $4,000 from taxable income per tax return for yourself, your spouse or your child. You need to claim your qualified deduction on Form 8917. You cannot claim this deduction if your filing status is married filing separately or if someone else claims you as a dependent on their tax return. The income threshold for this deduction is the same as that for the AOTC. (Note: This tax break was supposed to expire at the end of 2016, but the Bipartisan Budget Act of 2018 renewed it for tax year 2017. It’s unclear whether it will be continued for tax year 2018.)

Student loan interest deduction: If your income is less than $80,000 ($165,000 if filing a joint return) and you took out a student loan to pay for qualified education expenses for you, your spouse or your dependent, you may reduce your taxable income by up to $2,500 of student loan interest you paid. You cannot claim this deduction if your filing status is married filing separately or if someone else claims you as a dependent. You should receive Form 1098-E, the Student Loan Interest Statement, which can help you figure out your student loan interest deduction.

This interactive worksheet can also help: Can I Claim a Deduction for Student Loan Interest?

You cannot claim the Tuition and Fees Deduction (if it’s available for tax year 2018) if you have claimed an education credit for the same expense, Luscombe said, but you can still claim the Student Loan Interest Deduction.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

TAGS: , , ,

Advertiser Disclosure

Tax

Where Most People DIY Their Taxes and Tips for Last Minute Returns

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

A new MagnifyMoney analysis found that 45% of Americans file their taxes without paid help, while the other 55% rely on a paid tax preparer. The analysis is based on IRS statements of income data for returns filed Jan. 1, 2012 – Dec. 31, 2016.

Taking the DIY approach to taxes is most popular in these metro areas: Austin, Texas (62%); Virginia Beach, Va. (61%), Seattle, Wash. (59%), San Antonio, Texas (58%), Richmond, Va. (58%), and Portland, Ore. (56%).

For those taking their taxes into their own hands, using tax preparer software is a perfectly fine alternative. The IRS expects 155 million tax returns to be filed this year and 70% of tax filers are expected to receive refunds. However, missing even one simple detail on your return could make a big difference in your refund.

At the very least, to avoid errors, the IRS recommends e-filing for DIY preparers. It takes out some of the risk for human error, especially since most e-filing programs can help spot mistakes. If you’re comfortable preparing your own taxes, there are some last-minute tax tips to follow as you near the April 17 deadline.

DIY vs. PRO: Which is best for you?

The DIY approach is smart for people with simple personal taxes, where you basically can copy and paste information into the return, said Eric Nisall, founder of accountlancer.com, which provides accounting and bookkeeping for freelancers. For example, if simply have a W-2 from your employer and you don’t itemize deductions or have investments, you could definitely do it yourself.

Online programs continue to offer new features to help customers comprehend their taxes as they go, such as prompts nudging them to fill out missing information, or explaining why certain information is needed

A DIY approach also works if you keep organized throughout the year with receipts and statements, and if you are comfortable going through those details to correctly enter your taxes.

On the flip side, you should probably consider hiring a paid preparer if you are concerned about the difficulty of filing a tax return, have complicated financial information or want to develop a long-term accounting strategy.

Where to find help

There isn’t just one catch-all category for tax preparers today. Preparers include enrolled agents, attorneys and CPAs.

If you’re simply looking for someone to crunch the numbers for you and make sure your taxes are submitted accurately and on time, a basic tax preparer or an IRS-enrolled agent is a perfectly fine solution. They will usually charge a flat rate for filing your taxes (it will vary by location).

If you are looking for a more well-rounded tax preparer who can also offer long-term guidance on your tax strategy, you should seek out a certified public accountant.

“A good CPA won’t just fill in the forms,” said Steve Osiason, a certified public accountant and member of the Florida Institute of CPAs. “A good CPA will give you advice going forward about what you should be doing to save money.”

If you do decide to hire a professional, make sure it’s a reputable preparer who is transparent about their pricing, Nisall said.

He said some tax preparers will charge on such arbitrary basis as per-form completed (some of which take just a few check boxes to complete), or based on what you made in the previous year.

Ask for a list of their qualifications, proof of licensing and if they keep up with changes by taking continuing education classes. At the very least, ask for referrals from trusted friends, family or work colleagues. Some firms may even have Yelp review pages where you can see how past customers have rated their service.

The IRS also has a helpful tool you can use here: Directory of Federal Tax Return Preparers.

Don’t rush

Rushing through a meticulous task like filing taxes can mean a smaller return or no return at all.

“That’s where people make the biggest mistakes,” said Nisall.

If you do feel like you’re crunched for time and may not finish by the deadline, Nisall recommends filing for an extension early. He warns not to confuse the automatic extension to file (Form 4868) with an extension to pay; you are still required to pay an estimate by the deadline.

However, if you still don’t have enough time to pay, there’s more good news.

“If you owe money, you can also ask the IRS for an installment agreement when you file your taxes,” said Lisa Greene-Lewis, a CPA with TurboTax. “The installment agreement will allow you to pay your tax debt over six years.”

 

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kat Khoury
Kat Khoury |

Kat Khoury is a writer at MagnifyMoney. You can email Kat here

TAGS: