If you work, your employer probably withholds taxes from your paycheck throughout the year. When you file your tax return, if you turn out to owe less tax than you've had withheld, you'll get money back from the government. There's no standard, fixed percentage of your tax withholdings that gets refunded, but knowing the deductions and credits you're eligible for can help you minimize your tax burden and maximize your refund.
The size of your tax refund will directly be affected by the amount of withholdings you claimed on your W-4. The less tax you pay throughout the year, the more likely it is that you will owe taxes during your filing.
If you work a traditional salaried or hourly job, your employer will withhold tax from your paychecks throughout the year to pay federal income tax. Your employer also will withhold for state and city income tax if those are required in your area.
You can file an IRS form called a W-4 to help your employer figure out how much money to withhold from your pay. The calculation takes into account factors such as whether you have dependents, tax deductions you might receive and income from other jobs or other sources, such as bank interest.
It is worthwhile to keep this form up to date to ensure you're not paying too much or too little tax throughout the year. An online IRS withholding calculator can help you keep your taxes on track.
If you're earning a lot of money from sources other than a traditional job – whether it's from bank interest, dividends on stocks or work you do on the side – you likely won't have any taxes withheld related to that income.
You still generally are required to pay tax throughout the year on this income, though, which you do by filing what are called estimated taxes. If you don't cover all of your tax liabilities throughout the year through a mix of estimated payments and withholding, you may owe a tax penalty when you file.
You can make payments by mail or online through various options available from the IRS website.
Credits and Deductions
To maximize the amount of tax money you get back from the IRS, research any tax credits and deductions you may be eligible for. Generally speaking, credits reduce the amount of tax you owe, and deductions reduce the amount of income you need to pay tax on.
Deductions and credits exist for homeowners, students and their parents, people with dependents and people paying off student loans, among numerous other categories.
You can research applicable deductions and credits by visiting the IRS website, by talking with an accountant or tax preparer, or by using many common tax preparation software tools.
Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.