When you hear “Tax Day” or “tax season,” what comes to mind? For some, it means finally tracking down W-2s, 1099s, and other key documents. For others, it means it’s time to squeeze in last-minute contributions to their IRAs and HSAs. (Psst—we outline everything you need to know about the 2023 tax-year contribution limits in our tax guide.)
For almost all of us, tax season comes down to one straightforward question: When do I get my tax refund?
Tax Day is April 18 this year. Here’s what you should know before it arrives.
What Are the Different Types of Taxes?
First, let’s break down the types of taxes you owe each year:
- Your employers withhold payroll taxes and income taxes from your wages and send these amounts to the government. As an employee, you fill out a W-4 when you start a new job, which your employer uses to figure out how much income tax to withhold.
- The amount of federal income tax withheld from your gross pay depends on a few factors, like your marital status, the number of withholding allowances you claim, any additional amounts you want to withhold from your pay, and any withholding exemptions you claim. Allowances reduce the specific amount that’s taxed on your regular paycheck, whereas an exemption reduces the total of your taxable income.
- Social Security tax, Federal Insurance Contributions Act (FICA), and Medicare tax are also withheld and sent to the government by your employer throughout the year. The Social Security tax is 6.2%, and the Medicare tax is 1.45%.
- When you sell a capital asset, like a stock or a bond, at higher price than you paid to buy it, you “realize” the gain. This profit you make, also known as your capital gain, may be taxed. The same tax applies to mutual funds, when you sell a fund or even if you don’t. When a mutual fund makes an income distribution (for example, a bond fund or a dividend-paying stock fund) or sells its capital assets at a gain and doesn’t have any offsetting losses, it distributes that gain to shareholders. Shareholders, in turn, are then required to pay taxes on that distribution. So, if you own mutual funds in a taxable account, you may see a tax bill, even if you haven’t sold a share.
- If you’re in a higher income tax bracket, you may be liable for Alternative Minimum Tax. Essentially, AMT is an additional tax system to make sure higher-earning individuals are paying at least a minimum amount of tax. You can find out if you’re subject to the AMT and how it’s calculated by going to the IRS website. Thanks to changes in the tax code that went into effect in 2018, significantly fewer taxpayers are subject to the AMT than was the case prior to 2018.
How Long Does It Take to Get My Federal Tax Refund?
If you file electronically, you can expect to get your refund in less than 21 days. For those going the paper route, it can take up to four weeks or more. You can check the status of your federal tax refund here.
Keep in mind that delays can happen as a result of mistakes and missing information on your tax return, or suspected identity theft or fraud. If any of these issues are the case, the IRS will send you a letter in the mail to confirm any missing or needed information. From there, it can take up to 120 days or more to process your return.
Remember to be skeptical of any phone calls or emails claiming to be from the IRS, as they are likely scams.
How Long Does It Take to Get My State Tax Refund?
Like your federal tax refund, you’ll get your state refund faster if you file electronically.
For my fellow Illinoisans, you can check the status of your state tax refund here.
Why Is My Tax Refund So Low for 2022?
The average tax refund issued in 2022 (for the 2021 calendar year) was $3,121, a 7.6% increase from the previous year’s average of $2,899.
This year, many taxpayers will likely see a lower refund compared with last year for a few reasons:
- There will be no coronavirus pandemic tax relief.
- The enhanced Child Tax Credit of $3,600 has been reduced to its prepandemic credit of $2,000 for 2022.
- The Earned Income Tax Credit, which benefits low-income workers and families, has been reduced. In 2021, individuals with no children could receive up to a $1,502 break, but this year the most they’ll get is $560. Check out the EITC table breakdown from the IRS here.
How Can I Get the Most Back on Taxes?
Here are a few places you can find a tax break and boost your return:
- Your retirement accounts: Get the most out of your contributions with these guidelines from Morningstar’s director of personal finance Christine Benz.
- Your health savings account: Contributions are deductible, plus any interest and gains are tax-free.
- Charitable giving: These tax-friendly strategies for retirees not only do good, but also give a good break on taxes.
How Many Years Should You Keep Tax Returns?
You should keep your records for three years.
But before you throw anything away, if any of the following situations apply to you, you’ll need to hold on to your documents for longer:
- You filed a claim for a loss from worthless securities or bad debt deduction: seven years.
- You didn’t report all your required income, and it’s more than 25% of the gross income shown on your return: six years.
- You didn’t file a return: indefinitely.
- You filed a fraudulent return: indefinitely.
Prepare for Tax Day with our 2023 Tax Guide and IRA Resources.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.