Seeing how much you can get refunded is probably everyone’s favorite part of filing taxes. But when it comes to getting the highest amount possible, it helps to understand the factors that go into determining that number. In an effort to make your tax refund more fun, here’s TaxGlobal’s breakdown of the main factors that affect how much you get back.
- Marital status and dependents
You may notice that before filling out your tax return, you’ll be asked basic questions about your marital status, family size, and recent life events. It may be tempting to skip this section, but don’t! It’s important. Certain things like marital status and family size can increase (or sometimes decrease) the size of your refund. Based on your family dynamics, tax professionals can help you choose the filing status that will save you the most money on your return. In other words, answering a few quick questions could literally save you hundreds of dollars.
The first thing to be aware of is filing status. Here are the five options:
- Married filing jointly
- Married filing separately
- Head of household
- Single
- Qualifying surviving spouse (QSS)
Sometimes, you may qualify for more than one, which is where a tax professional can come in and advise you on which one to choose.
Another thing to be aware of is dependents. This is anyone who depends on you for financial support—usually a child, but sometimes other relatives, such as a parent or sibling (your spouse does not qualify). A dependent may be:
- Your child who is under 19 years old; or your child who is a full-time student and under 24 years old
- Your child of any age who is permanently or totally disabled
- Any other relative who depends on you for financial support
In addition to these criteria, a dependent may not:
- File a joint return with their own spouse
- Generate more than half of their own financial support
If you have dependents, your refund amount may increase, because you may be eligible for things like the Child Tax Credit (CTC) or the Child and Dependent Care Credit, which is available to working parents who have to pay for childcare.
- Credits and deductions
Both tax credits and tax deductions can decrease your taxes owed and/or increase your refund. A tax credit lets you subtract the amount of the credit from your total taxes owed, and if, after subtracting that credit, you owe less than $0, you’ll get that number refunded. For example, if you owe $1000 in taxes and get a $2000 refundable credit, you’ll receive $1000 as a tax refund. By contrast, a tax deduction reduces your taxable income, which means you now have less income to pay taxes on.
- Adjusted Gross Income (AGI)
Your adjusted gross income (AGI) is the total amount of your income—which includes wages, business income, and capital gains—minus deductions like money paid on student loan interest and HSA and retirement contributions. This number isn’t your taxable income, but it does help determine that amount. You get the number for taxable income by subtracting the standard deduction (a number that varies depending on your filing status) and any other above-the-line deductions you qualify for from your AGI. Hence, your AGI impacts your tax refund.
- Standard and itemized deductions
Speaking of standard deductions, that’s another factor. When you file your income tax return, you have two options for deductions: standard and itemized. Everyone qualifies for the standard deduction—provided they don’t choose itemized deductions. This is a flat amount, determined by your filing status, that you can subtract from your taxable income.
If instead you choose to itemize your deductions, you list all deductions separately instead of simply using the flat deduction rate. Things you might itemize include personal property taxes, qualifying medical expenses, state sales or income tax, and disaster losses. Obviously, you wouldn’t want to itemize unless the total amount of itemized deductions is greater than the flat rate of the standard deduction. But if it is, that can affect your refund amount.
- Withheld income tax
Did you have excess income tax withheld from your paychecks this year? If so, you’ll likely be able to get that money back after you file.
In the end, there are a lot of factors that go into determining your tax refund amount. Filing with the help of a certified tax professional can help ensure you get all the money you’re owed for the past year.