Tax Refunds Are Shrinking -- and That's a Good Thing

refunds
refunds

2011 wasn't a good year for those expecting big checks from the IRS. Not only were fewer refunds delivered to taxpayers (only 109 million!), but the average refund was smaller, too. Refunds for returns filed in 2011 averaged $2,913, down 3% from the year before, according to recent stats from the IRS on how the last tax year shook out.

Those numbers aren't surprising. After all, we're still in a tough economic environment. Unemployment has been falling, but by inches, not miles. And to some degree, improving numbers reflect some job-hunters who have given up looking and are no longer counted. Even those who got new jobs may have settled for work that pays less than previous jobs, leading to smaller paychecks and potentially lower refunds.

Others who have been trying to maximize the dollars at their disposal may have tweaked their withholding by revising their W-4 form at work. If less is withheld, refunds will be smaller -- or may not exist at all.

If you weren't one of these people, you might want to consider doing so yourself. It can be exciting and useful to receive a hefty check from the IRS each year, but it only means that you overpaid your taxes during the year, essentially giving Uncle Sam an interest-free loan. That money could have been working for you, not him, all that time. So, in this sense, shrinking refunds are a good thing!

Speed Up Your Refund

In other news, the number of refunds delivered via direct deposit rose 6% last year, and 14% more taxpayers filed returns via the IRS' free e-filing system. (About three quarters of all taxpayers now e-file.)

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If you want to receive your refund as soon as possible, the IRS recommends both e-filing and using direct deposit. Many such folks will get their refunds within just 10 days. Overall, more than 90% of all taxpayers expecting refunds should receive them within 21 days.

Still Waiting for That Refund?

One reason for a delayed refund is that the IRS finds it needs to spend a little more time reviewing your return. That can happen if it's filled out illegibly, or if there are any red flags suggesting possible fraud. Simple errors can slow down the process, too, such as a typo in your Social Security number, your address, or your bank routing number. Indeed, more than $150 million in refunds wasn't delivered last year due to problems with mailing addresses.

Get Help

Now or later, if you find yourself wondering, "Hey, where's my refund?" visit the IRS' "Where's My Refund" tool, which is also available via the IRS2Go app for Apple and Android products.

And if you find yourself vexed by some IRS procedures or you need to resolve some dispute with the IRS, consider checking in with the Taxpayer Advocate Service, which exists solely to represent the best interests of taxpayers.

Learn more and get more tips here:

Longtime Motley Fool contributor Selena Maranjian holds no position in any company mentioned. Click here to see her holdings and a short bio.

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