An estimated tax refund is an approximation of how much a taxpayer can expect back on a tax return, or, in some cases, an estimate of how much the person will owe. Numerous websites provide a calculator tool to allow people to get a rough idea of the amount of their refunds, and people can use this tool throughout the year to track their taxes and determine if they will owe money or get money back. This can help people with financial planning so they do not get a nasty surprise when they file taxes.
Over the course of the year, people make estimated tax payments to the Internal Revenue Service. Some people do this directly, while others have it done on their behalf with payroll deductions. The amount of the payments depends on how much a person will probably earn over the course of the year, with the goal of sending the IRS enough money to cover the person's tax liability. When people sit down to file their taxes, they may find that they are entitled to a refund after they add allowable deductions, credits, and other information to their tax returns. Conversely, they may owe money because they earned more than expected.
To find the amount of an estimated tax refund, people need to know how much money they made over the course of the year. They also need to have information about how much money they have sent the IRS. For more accuracy, a calculator may ask about filing status, likely deductions and credits, and other matters. Based on the information someone provides and the current tax rates, the calculator will determine how much money the IRS expects to receive in total and compare it with the amount paid. If people overpay their taxes, they will receive a refund.
When calculating an estimated tax refund, it is important to be aware that it is not completely accurate. The actual amount may vary, especially if people use a calculation tool with limited parameters. It's possible to end up with a smaller or larger refund when actually preparing taxes. The estimated tax refund can provide a ballpark figure to allow people to plan for tax season, but is not a firm figure. People expecting an estimated tax refund should be aware it can take several weeks to process taxes, and should take this into account when planning to use the money.
When calculations suggest that someone owes money, they can be a useful reminder to save money to cover taxes. People who start earning more money than expected or who receive a sudden windfall of funds should talk to an accountant to see if they need to adjust their estimated tax payments, or if they should set extra funds aside so they will be able to cover the higher tax bill.
