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What to Know About Tax Refunds

Tax Refund

Tax refunds are given to individuals or corporations who have paid too much federal tax throughout the course of the taxable year. A tax refund is money owed to the tax payer because the particular applicant's tax liability is less than the taxes paid. Throughout the taxable year the federal government takes money out an individuals paycheck. Each pay schedule is reduced by a certain percentage through the federal levy.

The government takes the money to fund the military, public services, and current expenditures. When the taxable year ends and the individual files his or her tax return the government will view the amount of income held during the year versus the amount currently owed. If the amount taken during the year exceeds the amount owed the federal government will issue a tax refund in the form of a paper check.

In 2008, over 75% of tax returns yielded a tax refund check. The average refund check was worth over $2,000, this simply means that 75% of the tax applications had more money withheld during the year than owed on April 15th of the following year.

Tax refunds can either be issued through paper check or deposited directly into the individuals bank account. If choosing the direct deposit option, the individual receiving the tax refund has the option of splitting the refund between up to three separate bank accounts. Tax refunds, especially through the increased options, enable individuals to increase consumption, savings, or personal investment.

NEXT: Can I Amend My Tax Returns?

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