Suppose you paid excess state taxes for the tax year 2017 and the government sent you a refund. In that case, could you apply the overpayment to 2018 taxes? Yes, you could. After all, that overpayment amount is your money. So, you can do whatever you want with it.
However, even if you think you are due for a refund, you won’t always get it. And sometimes, you may get it later than you anticipated. Also, when you get it, you don’t have to use the overpayment of taxes applied to next year.
Are You Owed a State Tax Refund?
To determine whether you are due for a state refund, you need to provide several crucial pieces of information to your state’s department of taxation. For example, if you reside in New York, you could search online for the relevant state link and opt for the check your refund option. Alternatively, you could call.
Critical details you should provide include:
- Your Social Security number
- The year you overpaid your taxes for which you want a refund
- The tax form you filed during the specified year
- The refund amount you requested
If you did not file returns, you must contact your tax preparer and request the information you need to determine your refund status.
Why You Have State Refunds
The number one reason you are likely to get a state refund is because your state’s Form W-4 withholding limits are too high. As a result, your employer will continue to pay excessive amounts of money as taxes.
You may also have refunds because you claimed a significant number of deductions and credits and, thus, reduced your taxable income. They may be due to the number of dependents you have, charitable contributions you made, medical expenses you paid for out-of-pocket, filing status and standard deductions due to you, retirement contributions you sent into your plan, etc.
Having a federal or state tax refund is akin to lending the government an interest-free loan and then getting it back without any benefit. For that reason, you should adjust your withholding amounts so that you overpay your taxes by as little as possible. But be careful not to owe the government either. If you do, you could pay penalties on the taxes you owe.
Alternatively, your withholding limits may be correct. In that case, you could be due tax refunds because you qualify for specific tax credits due to the deductions you have claimed for yourself even when you do not owe taxes.
Do remember, though, that states without income taxes do not have withholding forms. That means you are unlikely to get state tax refunds from their governments, but you could still get federal tax refunds if you live in those states.
Why Your Refund Is Late
Several reasons exist for why your state tax refund could be late. Below are some of them.
- If you included incorrect information, such as the wrong refund amount or made errors when making calculations, your refund will likely be delayed. For example, if you used the wrong bank routing and account numbers, your payments will either be sent to the wrong account or bounce. So, you may have to wait for a paper check or follow up for the monies to be re-directed into your account.
- Your refund will also be delayed if you did not include all the relevant information, such as your Social Security number or signature.
- If you filed your taxes late, you may have to wait in line for others to receive their state refunds first.
- When you forget to file some tax returns for the previous tax years, the refunds due to you may be held until you file the necessary documents.
Read More: Where's My Tax Refund: An Easy Guide
Benefits of Overpayment of Taxes Applied To Next Year
It could be helpful to apply your state refund toward next year’s taxes if you anticipate having issues that will interfere with your ability to pay normally or you expect to have a huge tax bill. For example, if you anticipate having income from other sources, such as capital gains, self-employment and awards, it may be wise to begin planning for the federal income taxes ahead.
Since every little bit helps, you could opt for estimated income taxes, which are paid quarterly and can be paid in advance. But you should only choose this method of paying taxes if you expect to owe $1,000 or more as an individual or some types of business at the time of filing. However, the limit is $500 or more for corporations at the time of filing. These figures exclude your withholdings and estimated refundable credits.
Your overpayment could enable you to avoid penalties due to late filing or late payment of taxes. And they could include accrued interest on the tax balance until you pay off what you owe.
Alternative Ways of Spending Your Refund
The average tax refund is about $2,800. But you don’t have to apply overpayment of taxes to next year. You can use your state refund in various ways. Instead, you could do the following:
- Build an emergency fund
- Set up a college saving account for your children
- Make extra payments toward your mortgage
- Increase your retirement contributions by opening or funding an individual retirement account (IRA)
- Pay off some of your credit card debt or student loans
You will not always set your withholding correctly, which means that you may have state and federal tax refunds coming your way in the future. However, it is better for the government to owe you money than for you to owe it money. You can always find things to do with your overpayments by applying them to the next year’s taxes or improving your financial situation in other ways.
- Tax.NY.Gov: Check your refund status online 24/7!
- Zenefits: Examples of State W-4 Forms
- AARP.Org: 9 States That Don't Have an Income Tax
- U.S News: When You Should (and Shouldn’t) Worry if Your Tax Refund Is Delayed
- IRS.Gov: Estimated Taxes
- AS: What is the average tax refund amount sent by IRS in 2021?
I have been a freelance writer since 2011. When I am not writing, I enjoy reading, watching cooking and lifestyle shows, and fantasizing about world travels.