How to Check the Status of Your Refund
If you have filed your federal income tax return and are expecting a tax refund, you might be rushing to your mailbox every day or logging into your online bank account each morning to see if your federal and state tax refunds have arrived yet.
But there’s a better way to answer the question, “Where’s my tax refund?” The IRS has created an online refund tracker that lets you quickly and easily find out the status of your tax refund. Simply enter your Social Security number or tax identification number, filing status and exact refund amount into the refund tracker and you’ll get an instant update on your refund’s status.
What the Refund Tracker Will Tell You
First, the refund tracker will tell you if your federal tax return has been received. If it has, the tracker will let you know whether or not your refund has been approved and sent.
Assuming you filed a complete and accurate tax return, you should receive your refund within 21 days of the date it was received by the IRS if you filed electronically. If you filed a paper return, it could take between six and eight weeks for you to receive your tax refund.
Each state that collects state income tax also has a refund tracker. Visit your state’s Department of Revenue website for more details.
What to do with Your Tax Refund
Once you receive your refund, the question shifts from “Where’s my tax refund?” to “What should I do with my tax refund?” Here are four ideas:
1. Create or contribute to an emergency fund.
For many people, the Coronavirus crisis has really emphasized the importance of creating an emergency savings fund you can easily tap if you lose your job or face an unexpected major expense. These funds could provide much-needed cash to carry you over financially during a period of unemployment or pay a major repair or hospital bill without having to use a high-interest credit card or selling off equities in your portfolio at an inopportune time.
We generally recommend having 3-6 months worth of living expenses, in cash, in your emergency fund. Depending on your situation, you may need more or less. If you are worried about your job security in this uncertain economy, perhaps saving a little more is a good idea for you. Your tax refund probably won’t amount to this much money, but it can help you make progress towards your emergency savings goal, or get you to your goal if you’ve already started your rainy day fund. It’s usually smart to keep your emergency cash in a liquid savings account that you can easily tap without penalty. A good option is Personal Capital Cash — it’s FDIC insured, has no hidden fees, and flexible deposits and withdrawals.
2. Pay down debt — especially high-interest credit card debt.
Paying double-digit interest rates on thousands of dollars of revolving credit card debt usually isn’t a smart financial move. By using some or maybe even all of your tax refund to lower your credit card debt, you could reduce the amount of money you’re spending on interest payments. Even if this doesn’t completely eliminate your credit card debt, it will still save you money and could also give you a psychological boost.
3. Make an extra retirement account contribution.
While it might be tempting to use your tax refund to splurge on something you can enjoy now, you can possibly grow your refund exponentially over time by saving it for retirement.
The average tax refund last year for tax year 2018 was $2,869. If you contribute this amount to your retirement plan and earn an average annual return of 6%, this could grow to more than $12,300 after 25 years. This is the definition of delayed gratification! Contributing to your retirement accounts might seem difficult while the markets are so volatile, but remember, the sooner and more you can invest, the more you can take advantage of the wonders of compounding interest. Take a look at what you could have in your 401k by the time you retire.
How to Lower Future Tax Refunds
Keep in mind that receiving a very large tax refund isn’t necessarily a good thing. Your tax refund represents money that you overpaid in taxes, which makes it essentially an interest-free loan to Uncle Sam.
You can lower the amount of your tax refund next year and increase your take-home pay each pay period by adjusting your income tax withholding on IRS Form W-4. Ask your payroll or HR department to help you with this.
Suggested Next Steps for You:
- Sign up for Personal Capital’s FREE financial tools to track your spending and saving, and monitor your emergency fund.
- Download our FREE guide to tax-efficient investing, “5 Tax Hacks for Investors”