Refunds are expected to be bigger than usual this year, so personal financial adviser Ray Martin tells The Early Show the fastest way to get hands on that money.
Martin says when it comes to filing taxes it is best to just do it! Kiplinger's Personal Finance magazine predicts that the average refund may jump 25 percent -- putting an average of $500 more into taxpayers' pockets.
President Bush signed a tax cut into law last May. Extra money began finding its way into paychecks in July, but the cut was retroactive to January 1, 2003. That means Americans overpaid the government between January and July. Married couples will also see larger refunds thanks to an increased standard deduction introduced last year.
How quickly you get your refund depends on how you choose to file your taxes, and how you choose to receive your refund. The following are different ways of filing taxes and the amount of time one can expect to receive a refund back:
- Paper Filing, Paper Refund: 4 to 6 weeks
Mailing in your tax return and receiving a check in the mail is the traditional method of filing. Martin says those who file now instead of joining the mad rush of April filers will have a better chance of receiving a check in four weeks instead of six or more.
- Paper Filing, Direct Deposit: 3 to 4 weeks
Martin says mailing in a paper return and opting to have the government automatically deposit a refund into a bank account will potentially cut your waiting time in half.
- e-file, Paper Refund: 3 weeks
If you don't like the idea of direct deposit, you can file your taxes online and receive a check in the mail in about the same amount of time.
- e-file, Direct Deposit: 10 to 14 days
Martin says the fastest choice is to file online and have the refund directly deposited into an account.
The IRS is encouraging people to choose direct deposit for receiving refunds. Last year, 44 percent of those who received a refund chose direct deposit.
Martin agrees direct deposit is a great way to go, but he does offer a warning to joint filers. Direct deposit into an individually owned bank account for a refund from a joint tax return can get tricky, he says. Some financial institutions will reject such a deposit, which will delay the time to get a refund. To avoid this, make sure you check with your bank to ensure they will accept the deposit of a refund from a joint tax return.
Martin says 41 percent of returns were filed electronically last year. Taxpayers have two options to file online. They can prepare their own taxes and then file them from a home computer. Or, they can hire someone to prepare their taxes and ask them to file the return electronically. The e-file is free, but a tax professional may charge for the service.
Even taxpayers who know they will not be receiving a refund because of money owed should still consider e-file, according to Martin.
Filing online typically results in fewer errors. Online returns have an error rate of less than one percent. The e-file program will automatically check the online form for mistakes. If one is detected, the form will be mailed back to you for clarification. Within 48 hours of hitting your "send" button, the IRS will email to confirm it received the form and it has been approved for processing.
Folks, who owe money, usually have to submit the form and check at the same time when filing a paper return. If they used e-file, those taxpayers could file now and pay later by just asking the government to charge a credit card or deduct the money from a checking account on April 15.
Also, D.C. and the following states also allow taxpayers to file state taxes online:
- New Jeresy
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- West Virginia
On the IRS Web site, it offers taxpayers to use "Free File," a free tax preparation and filing tool for taxpayers who meet certain requirements such as being in an average or low income bracket, younger than 22, older than 65, or in the military. Martin says Free File and e-file are different. E-file simply allows you to file your taxes electronically. Free File allows people meeting specific requirements to receive free help "preparing" their taxes which are then filed online.
Martin warns taxpayers to be on the lookout for tax preparation companies offering to give a refund immediately. He says it sounds great, until further examination. The companies are offering taxpayers, who enroll in their play, a loan for the amount of their refund. But, the taxpayer have to pay a fee for the loan and interest on the loan. Some may see the plan advertised as Refund Anticipation Loans.
Martin says he has never been a fan of these Refund Anticipation Loans, such as the Rapid Refund program advertised. He says most taxpayers can wait to get their refund in two weeks -- using e-file and direct deposit with no added fees and charges.
One last note to people who are antsy to receive their refund: you can track your refund online.
If you choose to file your taxes online, log on to www.irs.gov and look for the "e-file" icon.
Taxpayers can find out if their returns been mailed and where it's been sent by logging onto the IRS Web Site and clicking on "Where's My Refund?"