This year’s tax season has turned out to be a complicated one — the American Rescue Plan made changes midseason, and the IRS pushed back the filing deadline for individual returns to May 17 from April 15.
Even though most Americans have extra time to file, 32% of taxpayers are still unsure whether they’ll be getting money back or will owe the IRS, according to a recent survey from NORC at the University of Chicago.
The survey polled 1,076 adults online and over the phone Feb. 25 through March 1.
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“The complexities just continue to unfold,” said Angela Fontes, vice president of the economics, justice and society department at NORC at the University of Chicago. “To me it says there’s a lot of folks who potentially had some extenuating circumstances that make it so they’re not sure they’re getting that refund.”
Why you’re getting a refund
Most Americans do indeed get a refund from the IRS after filing their tax returns. In 2020, nearly 170 million people filed tax returns, including traditional non-filers who submitted information to get their economic impact payments. That year, the IRS issued nearly 126 million refunds, accounting for about 74% of all filers.
The average 2020 refund was $2,549, about $321 less than the average 2019 refund of $2,870. This year, the IRS had received about 76 million individual tax returns through March 19 and has issued nearly 50 million refunds. The average refund size so far is $2,929, according to the agency.
Taxpayers receive refunds from the IRS when they overpay what taxes they owe on their annual adjusted gross income. This generally happens because employers withhold more than needed to pay taxes from their employee’s paychecks. At the end of the year, when taxpayers file, the IRS cuts them a check for the amount they overpaid.
On the flip side, people may owe the IRS money at the end of the year if they underpaid their taxes on any income they made. This can happen if someone selected the incorrect withholding amount, isn’t setting aside money from a side hustle or gig work, and isn’t making estimated tax payments throughout the year.
This year, the pandemic led to some extra confusion for taxpayers. Millions who lost jobs due to Covid realized as filing season began that unemployment income was taxable and could lead to a tax bill if it hadn’t been withheld throughout the year.
Then, the American Rescue Plan was passed, which made the first $10,200 of unemployment income tax free for those with adjusted gross income less than $150,000 in 2020 (the amount is $20,400 for married couples filing jointly with combined income less than $150,000.)
In addition, anyone who picked up gig work or started a side hustle last year may have a different filing process than they’re used to. And, evidence of an uptick in trading could add complexity to some tax returns — other income such as selling stocks or other investments such as cryptocurrency must be reported to the IRS and will be taxed.
How to find out if you will owe the IRS
If you’re not sure whether you will owe the IRS at the end of the year or get money back, there’s a pretty simple way to find out, according to Anjali Jariwala, a certified financial planner, CPA and founder of FIT Advisors in Torrance, California.
The IRS has a calculator where taxpayers can input their filing information, including how much they’ve worked, what they expect to earn, what deductions they might be eligible for and credits they could receive.
The calculator then estimates if you’re likely to get a refund or will owe the IRS.
“It is especially helpful to run your numbers if you receive large bonuses or other income streams that may not have been expected,” Jariwala said.
Throughout the year, people should also check their paychecks to make sure their employer is correctly withholding a portion of their income for taxes, said Fontes of University of Chicago.
In addition, taxpayers should hold onto any documentation about income such as 1099s, pay stubs and any other forms to prove what you’ve earned. Comparing that information to a previous tax return can also help people assess if they might get a refund or owe the IRS, Fontes said.
Of course, for those with more complex tax returns, Jariwala and Fontes recommend seeking professional help to make sure you’re paying your taxes correctly.
“If you’re a business owner, 1099 [filer] or have other tax complexity, then you should really use a CPA and have them run projections throughout the year,” Jariwala said.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.