The 2025 tax season will begin in January 2025, and taxpayers should start to prepare for their tax return to complete their tax obligation timely. Taxpayers should know the 2024 tax year deductions, credits, and other factors to estimate their taxable income and refund.
Taxpayers need to enter the estimated refund amount with the tax return. The tax refund calculation may seem difficult for some people, but it’s not that tough if you understand it’s working well. So, taxpayers preparing for tax returns wondering about the refund calculation learn everything here.
How to Calculate IRS Tax Refund 2025?
The IRS refunds overpaid taxes to taxpayers after they file their tax returns. The overpaid taxes generally come from withheld taxes curated from their salary. Taxpayers also recover refunds when they claim refundable credits or credits that may lower their tax bill and increase their tax refund.
Taxpayers when preparing for the IRS tax return calculate their taxable income based on their dedication, applicable credits, exemptions, and other factors. Taxpayers can easily calculate their tax refund while filing tax returns through IRS tax form 1040 or 1040-SR based on their credits, dependent on the return, and overpaid taxes.
Taxpayers can also use the tax refund calculator available in the market or IRS Tax withheld estimator to estimate their 2024 tax return. The tax refund calculator uses your gross income, tax slab you fall into, deductions (itemized or standard), Retirement plan contribution, dependent status, and other factors.
Documents or information you would need to calculate tax refund 2025
The refund amount depends on the accuracy of the information you enter in your tax form, which you can achieve via IRS other forms or records to estimate your tax refund. Here’s the information or documents you may require based on your circumstances, filing status, income, and other factors:
- IRS contributions records or other retirement plan,
- Form W-2 wage from their employer for Wage and tax statement
- Dependent info mentioned in the tax return
- Tax Credits and deductions documents
- Other income records or Form 1099
- Mortgage interest (if any)
- American Opportunity Credit (Form 8863)
- Digital assets
- Filing status
Refund calculation through IRS tax form
The IRS tax form 1040 has all the sections for Digital assets, Standard deductions, Dependents, payments, etc. In Form 1040, when you enter all the entries, you will get your taxable income, total tax, and total payments to calculate your overpaid taxes.
You will receive a tax refund for overpaid taxes when your total payments are more than the calculated total tax. When your total payment exceeds the total tax, you should subtract the total tax from the total payment to get the overpaid amount. The overpaid amount will be your refund amount for the tax year.
Taxpayers should know the total payment includes, Forms W2, 1099, EIC, ACRC, Amount for Schedule 3, refundable credits, American opportunity credit Form 8863, and others. For instance, suppose, your gross income is $50,000, your Standard deduction is $13,800, your taxable income is $36,150 and withheld taxes are $7000, then,
- Your tax liability based on the 2024 tax brackets will be 12%, the tax will be around $4,338.
- Your refund for the tax year will be $7000 – $4338, equal to $2662.
IRS provides various services or tools that make tax preparation easy such as IRS Free File where you can get help from tax preparation software for free of cost.
How to increase your IRS tax refund?
When the total payment is more than the total calculated tax, it means you have overpaid the taxes, so your refund will be maximized when you have a higher total payment. Taxpayers can increase their tax refund in the following ways:
- Tax credits lower your tax bill, which will ultimately increase your tax refund. When you qualify for the tax credits you receive a refund even when you have no income to report to the agency.
- Itemized Deductions: The tax refund increases with itemized deductions, such as state taxes, mortgage interest, and charitable donations. For the 2024 tax year, the agency has sanctioned no limit for the itemized deductions.
- Retirement Contribution: The retirement contribution lowers the taxes for the taxpayers, hence with retirement contributions your refund will increase. But make sure, you do not over-contribute as it has consequences where you may have to pay more taxes.
When will you receive your IRS tax refund in 2025?
As per the IRS guidelines, taxpayers receive their tax refund within 3 weeks of when the IRS accepts their e-filed return. When taxpayers file tax returns electronically and opt for direct deposit they receive the tax refund faster.
However, if you have claimed the tax credits, such as EITC or refundable credit your refund will be halted till 15 Feb 2025 under the PATH Act regulations. If you filed tax returns through a mailed form and selected a physical check as your payment method, your refund may take a longer time such as 30 to 60 days.
IRS tax refund calculation is easy when you have all the accurate information from your deductions to credits. Hence, taxpayers are advised to check if they are eligible for any tax credits this year before preparing for the tax return and calculating their tax refund.
You can always get help from tax professionals if you are still confused about the tax return but check the IRS services and tools first, such as Free File, Direct File, and others to file your tax returns and prepare for the taxes.