Tax Refund Season is Here – What You Need to Know

Mar 14, 2024

For millions of Americans, the arrival of tax refund season is more exciting than the holidays. There’s something thrilling about receiving a lump sum payment from the IRS, even if it is just your money being returned to you. This year’s average refund of $3,213 is up a healthy 4.3% from last year. As of late February, the IRS had already paid nearly $93 billion in total refunds.

While a refund hitting your bank account can feel like receiving “free money,” it’s essential to understand the reality. That refund isn’t a gift – it’s simply the money you overpaid to the government throughout the year finally being returned to you. So, while getting a refund is undoubtedly better than owing, it’s not necessarily something to celebrate wildly. 

How Soon After I File Can I Get My Refund?

According to the IRS, if you file your return electronically and opt for direct deposit, you can typically expect to see your refund within 21 days. That three-week window applies for the vast majority of relatively straightforward returns. If you mail in your paper return, it will likely take at least four weeks to receive your refund payment.

Where Can I Check on the Status of My Refund?

For those anxiously awaiting their refund, there are multiple ways to check its status and estimated arrival date. The IRS2Go mobile app has a handy refund tracker, as does the IRS website through the “Where’s My Refund?” tool. You can also call the IRS refund hotline at 800-829-1954 for an automated update.

This year, the IRS has enhanced the information provided by the Where’s My Refund tool. It now shows multiple data points, including whether your return was received, if your refund amount was approved, if it’s being prepared for payment, and if the money has been sent to your bank or is arriving by mail. Overall, taxpayers should have much better visibility into the status of their refund.

Why Is My Refund Taking So Long to Arrive?

While the IRS strives for that 21-day turnaround time on e-filed returns with direct deposit, some refunds may, unfortunately, face lengthy delays. There can be several reasons behind a delayed refund, including errors or missing information on your return. Returns that claim credits like the Earned Income Tax Credit often get a more thorough manual review.

One of the biggest culprits for refund delays is being the victim of identity theft and tax fraud. If a fraudster has already filed a return and attempted to claim a refund in your name, it can create a nightmare situation to resolve. In the past, the IRS has left legitimate taxpayers waiting over 19 months in some cases to receive their refund while identifying theft issues to get sorted out.

If your refund is delayed, you should receive a letter from the IRS explaining the situation and providing an estimate for when to expect payment.

Can I Buy Savings Bonds With My Refund?

For those looking to save at least a portion of their tax refund in a relatively safe investment, you can purchase U.S. Series I Savings Bonds of up to $5,000 per year using your refund money. Series I Bonds are explicitly designed to protect against inflation, making them an attractive option during high inflation, as we’ve seen recently.

These inflation-indexed bonds currently earn a combined interest rate of over 5.27%, with that rate recalculated twice per year. You can buy bonds in increments of $50 using part or all of your refund. Upon purchasing, you’ll receive paper bond certificates in your name or jointly with your spouse if you filed taxes that way.

Can I Deposit My Refund Into More Than One Account?

The IRS also allows you to split your refund across up to three different accounts. You can send money to different checking, savings, or investment accounts or use part of your refund to purchase savings bonds directly while depositing the rest into your bank account.

If you’re e-filing, follow the instructions from your tax software related to splitting your refund payment. Those filing by mail can complete IRS Form 8888 to allocate their refund across multiple accounts.

Why You Shouldn’t Get Too Excited About That Refund?

As gratifying as it feels to receive a refund from the IRS, there are plenty of good reasons why you shouldn’t be overly excited or intentionally overpay to get that more considerable lump sum. For starters, a refund represents an interest-free loan you gave to the government for several months to over a year. That money could have earned returns in an investment account or high-yield savings.

A new survey from Bankrate found that over 28% of Americans plan to take their refund and immediately move it into savings. While putting that money away isn’t a bad idea, it would have been better to have that money accumulating interest or investment gains throughout the year rather than letting the IRS hold onto it.

Others plan to use their tax refunds to pay down debt, which can be a smart move given today’s elevated interest rates on credit cards and loans. The average credit card interest rate was 22.75%, so using a tax windfall to chip away at that toxic debt is a wise financial move. However, those making consistent payments out of their average cash flow likely paid less total interest.

A large refund isn’t something to celebrate unless you qualify for refundable tax credits, resulting in that hefty payment. In an ideal world, when filing your taxes, you want to be as close to a $0 balance with the IRS each year. A tiny refund or amount owed is perfectly acceptable – it just means you did a good job anticipating your tax liability.

The IRS provides resources to help taxpayers get to that sweet spot, including its online Tax Withholding Estimator. By ensuring the proper withholdings from your paycheck, you can put more of your money to work throughout the year rather than letting the government use it for free.

So enjoy this year’s refund if you’re getting one. However, make it a priority to adjust your withholdings with your employer using IRS tools to avoid giving the government too much of a loan in the future. Access to your entire paycheck will give you more flexibility and the opportunity to make your money work harder throughout the year.