How to get a refund from the IRS if taxes were over-withheld?

Question

Here is my timeline:

I did not work in 2019 until Sept 23;

Sept 23, 2019 start a job with 36% of every paycheck withheld for tax;

Jan 10, 2020 got laid off;

Jan 15, 2020 got a partial paycheck which was taxed at only 26%;

Severance was 20 days pay and got taxed at 39% (ouch)

From the differing tax rates it appears that each paycheck has tax withheld based on the question: "what tax bracket would this guy be in if he made this much every two weeks for an entire year?"

But I didn't work for an entire year. I only worked the last 3 months of 2019. I made around $41K gross and $25K net over this time, for a total tax percentage of about 37%.

In 2019 I made around $38k gross and $23k net for a total tax percentage of 36%.

So since I only made $38k gross in 2019: Should I be in that lower tax bracket and get a refund?

Answer 1

It's actually your money

Let me guess. You're in the habit of just selecting exemptions carefully so your refund is not worth worrying about, and just walking away from your tax situation at the end of the year and letting them keep it. OK nothing wrong with that (though this is not a good year to do that).

Literally. Nothing wrong with that. Well, technically it's illegal not to file your taxes, but if the IRS owes you money, the penalty is $0. I do it all the time, coz I'm gangsta like that.

Actually, the way taxes work is your actual tax isn't computed until the year is over. All the IRS payments up to that point are withholding: this is the IRS estimating how much tax your paycheck will cause, and "safe-keeping" that money so that it's available to pay your tax when you finally do on April 15. Can you imagine if withholding didn't exist? And every American had a $5000, $10,000, $30,000 balloon payment they got slammed with every April 15? That wouldn't work at all! Hence, withholding.

So, Withheld money is your money. The IRS is just holding onto it for you. It only becomes their money when you file your taxes, or, if you abandon it and three years pass. Any refund you were due for 2016 becomes irrevocably theirs on April 15 2020.

File your taxes

Now you should file your taxes in the fullest sense of the word. (Well, almost. When you "E-file", you are actually making an agreement with the IRS to exchange data in lieu of filing. That has some disadvantages, but none for you in 2019.) So definitely E-file at your first opportunity!

Now, I'm a big fan of actually knowing what I am doing when I do a thing. Therefore I recommend you create a paper file folder for all your W-2s and 1099s, any tax related document. Then, get ahold of the Form 1040 and 1040 Instructions. And spend some time and just read through that stuff. Mostly the procedural on how to write out a 1040 form old school, what to put in what boxes, and get a sense for the flow of the documents, how things total, how they block deductions, how they arrive at tax, how payments block out, and all that. Pull the numbers over from your W-2s and 1099s as needed.

Then once you've got a sense of how the actual, paper 1040 works... and you should have an exact "tax you owe" figure.... now go e-file. It will seem very familiar, you are dropping the same numbers into the system, and you know how it will arrange that data, and it will present you a result that will look very familiar. Then you go "Yup!" or "Wow, that's different! (research) oh OK". Then, you'll feel good about what you see, so you'll hit "E-file!" And then your refund will EFT into your bank account however fast that happens.

Now go back and look at past years.

And then... go see if you can find your 2016 Forms W-2 and 1099. Mind you, the 2016 tax form was quite different then; things now broken into Schedule 1-2-3-4-5 were instead on this long 2 page form. With stuff about "Exemptions". But whatever. You'll recognize it and know the drill. Plug the numbers in (remember to use the 2016 tax tables not 2019) and see if the refund number is worth a stamp to you. In this case you will need to paper file because of the age.

Rinse wash repeat for 2017 and 2018.

You could wind up getting some lovely checks or EFTs from the IRS. Mind you, processing of previous years' forms is MUCH slower than e-file, expect several months. But hey, free money, and it was your money all along.

Answer 2

Given the scenario, the likely answer is Yes you will get a tax refund

Withholding at a job is generally calculated as you say "as if this was the salary for this time period [week, month, 2-week] over a full year." That is why they withheld an amount as if you were in a higher bracket.

When you fill out your tax return, you will put the total earnings that you had, then after deductions, etc, will determine your taxable income, and from that determine how much your total tax for the year is. If the withholding is more than that, you get back the difference. If the withholding is less, then that is the amount that you owe to the IRS.

P.S. Be sure to check the situation with your state income tax also (if your state has income tax). You will likely get some refund there for the same reasons.

P.P.S. By the way, all of the money that you got paid in 2020 is for the 2020 taxes, which you will file in 2021. It does not matter if you did the actual work in 2019. It is the date of the paycheck (electronic transfer now). There are rare exceptions, but for almost all employee situations, this is the case. Unfortunately, if you are owed any refund for that you will not get it until you file in 2021.

Answer 3

So since I only made $38k gross in 2019: Should I be in that lower tax bracket and get a refund?

Probably. Even if you had no deductions you would only owe about $2,200 in tax (12% of the amount over 19,400). With a 12,200 standard deduction for a single filer your taxable income your taxable income would be around $26k, and your total tax due would be around $800.

Pre-tax deductions like health insurance, 401(k), etc. will change these numbers, and you didn't say how much federal tax was withheld, but it's not uncommon when you only work part of a year to over withhold based on the logic you mentioned.

Answer 4

What I would like is an on-time refund for my 2019 earnings.

Your refund will be on-time unless the IRS screws something up. But you can't control that. What you can control, though, though, is on-time filing. Meaning... before April 15th.

Thus, to get a refund ASAP, file your tax return as soon as you get all the proper documents: W-2, 1099 forms from banks, brokerages, etc. Then, unless you or the IRS screw something up, you'll get your refund in about a month.