Tax refunds explained: What to know and when they come in.
Key takeaways:
- A tax refund is money returned to you from paying in more than you owed for your taxes during the year.
- Life changes, withholding choices, and refundable credits all influence the size of your refund.
- Simple steps — like updating your W-4 and filing electronically — can help speed up the process and reduce surprises.
Have you ever wondered how the tax refund you get/owe each year is determined? A tax refund is money the government sends back to you after you file your tax return. It happens when the amount you paid in during the year—through paycheck withholding or estimated payments—was more than the tax you actually owe.
Getting a refund can feel like a welcome boost, but it may also be a sign that too much was withheld from your paychecks. Understanding how refunds work can help you avoid surprises, plan for the year ahead, and know when you might receive your money.
What Is a Tax Refund?
A tax refund is the difference between your total tax bill and the payments and refundable credits opens in a new window the government has already collected on your behalf. If those payments are higher than your final tax amount, you get a refund.
Here’s how it works:
Total payments – total tax liability = what you owe
If you underpaid, you’ll owe a balance.
Understanding Tax Refunds
Refunds begin processing once you file your tax return. The IRS opens in a new window reviews your information to confirm income, credits and accuracy. When your return is approved, your refund is issued through direct deposit or a paper check.
Common reasons for a refund:
- Extra tax withheld from your paycheck.
- Receiving refundable credits, such as the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC.)
- Making estimated payments that were too high.
- Life changes, such as having a child or qualifying for new credits.
Your Form W-4 opens in a new window plays a big role in how much tax is withheld. Depending on your withholding election, you may get a larger refund, meaning less take home pay throughout the year. Updating your W-4 after major life events helps keep things in balance.
If you’re a freelancer or work as an independent contractor, you might also hear about the W-9 form opens in a new window. You don’t file it with your taxes, but it helps collect accurate taxpayer information — something the IRS relies on during review.
Special Considerations.
Your filing status, income level, and life changes can all affect your refund. For example:
- Filing status: Taxpayers may qualify for broader tax brackets depending on their filing status.
- Income shifts: Raises or bonuses may reduce a future refund if withholding doesn’t adjust.
- Life changes: Job loss, having a child, or higher deductions may increase a refund.
- Processing delays: Mistakes, identity checks, missing forms, or certain credits (like the EITC) can slow refunds.
Filing electronically, choosing direct deposit, and double checking your return can help things move faster.
Refundable Tax Credits.
Refundable credits are unique because they can reduce your tax below zero — meaning you may receive a refund even if you owe nothing.
Common refundable or partially refundable credits include:
- Earned Income Tax Credit opens in a new window (EITC) – A refundable credit that helps low-to moderate-income workers, especially families with children.
- Additional Child Tax Credit opens in a new window(ACTC) – The refundable part of the Child Tax Credit. If the credit is higher than the tax you owe, you can get a refund for the difference (up to $1,700 per child in 2025), if you have at least $2,500 in earned income.
- American Opportunity Tax Credit (partially refundable) – A credit of up to $2,500 per eligible student to help pay for the first four years of college. Part of this credit can be refunded.
- Premium tax credit adjustments – These help lower the cost of health insurance purchased through the Marketplace and may result in a refund, depending on your final income.
How Refunds Are Issued.
Your refund commonly arrives in one of two ways:
- Direct deposit — Faster and more secure.
Tip:
- Paper check — Mailed to your address and may take longer.
E-filed returns with direct deposit are often processed within about 21 days. Paper returns usually take more time. Returns claiming the EITC or ACTC may take longer because of additional security checks. You can track your refund using the IRS “Where’s My Refund?” opens in a new window tool or the IRS2Go app. Most updates appear within 24 hours of e filing or four weeks after mailing a paper return.
Tips to Manage Withholding and Refunds:
Update Form W 4 after major life changes.
- Use the IRS Tax Withholding Estimator opens in a new window to plan ahead.
- Review your withholding midyear, especially after bonuses or new income.
- Decide whether you prefer more take-home pay or a larger refund.
- Collect accurate W-9 information from contractors to avoid mismatches.
Frequently Asked Questions:
Is a tax refund good or bad?
Can I change how much refund I receive?
Do I pay taxes on my refund?
What if I do not receive my refund?
Want to make the most of your tax season?
A Commerce Bank banker can help you review your financial picture and build a plan that fits your goals — whether you expect a refund, a balance due, or simply want more control over your paycheck. Visit a Commerce Bank location or connect with us online today.
