Personal Finance

Here’s how to get a faster tax refund this season, experts say

Published

2 days ago

January 27, 2025

Business Finance News

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It’s official: Tax season is open for individual filers and the IRS has started to process 2024 tax returns.

If you’re expecting a refund, there are key things to know, according to tax experts.

“There are some very simple tips to get the fastest refund possible,” said Mark Steber, chief tax information officer of Jackson Hewitt Tax Services.

For most filers, the federal tax deadline this year is April 15 for returns and balances. The agency expects more than 140 million individual returns before the due date.

Typically, you’ll receive a tax refund if you overpaid taxes the previous year. But you could owe money if you didn’t withhold enough from your paycheck or didn’t make payments throughout the year.

As of Dec. 27, the average refund was $3,138 for the 2024 filing season, which was slightly lower than 2023, according to the IRS.

How to get a faster tax refund

If you’re eager for your refund, the best way to speed up the process is by filing electronically and picking direct deposit for your payment, former IRS Commissioner Danny Werfel said during a press call in early January.

“Nine out of 10 taxpayers will see their refund within 21 days, and often sooner,” he said.

You can check the refund status of your current-year, electronic filing with the IRS 24 hours after submitting your return.

Paper refund checks are 16 times more likely to have an issue, such as theft or misdirection, according to the U.S. Department of the Treasury’s Bureau of the Fiscal Service.

However, it’s also important to enter banking details correctly when selecting direct deposit for payment, experts say. You should always double-check routing and account numbers.

During fiscal year 2023, more than 90% of individual taxpayers filed electronically, the IRS reported.

You need a ‘complete and accurate’ return

While many taxpayers are itching to file early, it’s important to wait until you have all the necessary tax forms, according to Elizabeth Young, director of tax practice and ethics for the American Institute of Certified Public Accountants.

You want a “complete and accurate tax return,” she said. Otherwise, the IRS could flag your filing for mistakes, which causes delays.

While many tax forms arrive in January, others won’t be ready until mid-February to March or later.

Some common tax return errors include missing or inaccurate Social Security numbers, misspelled names, entering information wrong and math mistakes, according to the IRS.

Personal Finance

Social Security Fairness Act beneficiaries may face lengthy wait

Published

9 hours ago

January 28, 2025

Business Finance News

More than 3.2 million people will see increased Social Security benefits, under a new law.

However, individuals who are affected may have to wait more than a year before they see the extra money that’s due to them from the Social Security Fairness Act, the Social Security Administration said in an update on its website.

“Though SSA is helping some affected beneficiaries now, under SSA’s current budget, SSA expects that it could take more than one year to adjust benefits and pay all retroactive benefits,” the agency states.

The Social Security Fairness Act eliminates two provisions — known as the Windfall Elimination Provision and Government Pension Offset — that previously reduced Social Security benefits for certain beneficiaries who also had pension income provided from employment where they did not contribute Social Security payroll taxes.

Those provisions reduced benefits for certain workers including state teachers, firefighters and police officers; federal employees who are covered by the Civil Service Retirement System; and individuals who worked under a foreign social security system.

The law affects benefits paid after December 2023. Consequently, affected beneficiaries will receive increases to their monthly benefit checks, as well as retroactive lump sum payments for benefits payable for January 2024 and after.

The benefit increases “may vary greatly,” depending on an individual’s type of Social Security benefits and the amount of pension income they receive, according to the Social Security Administration.

“Some people’s benefits will increase very little while others may be eligible for over $1,000 more each month,” the agency states.

The Social Security Administration said it cannot yet provide an estimated timeline for when the benefit adjustments will happen.

In the meantime, the agency is advising beneficiaries to update their mailing address and bank direct deposit information, if necessary. In addition, noncovered pension recipients may now want to apply for benefits, if they are newly eligible following the enacted changes.

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Personal Finance

Student loans not affected by federal aid freeze

Published

10 hours ago

January 28, 2025

Business Finance News

'Tremendous amount' of instability under new Trump administration, says CIO

The White House is pausing federal grants and loans, according to a memo sent out Monday night, but the freeze will not impact student loans or financial aid for college.

The freeze, which could affect billions of dollars in aid, noted an exception for Social Security and Medicare. The pause “does not include assistance provided directly to individuals,” according to the memo.

The pause gives the White House time to review government funding for causes that don’t fit with President Donald Trump‘s policy agenda, according to Matthew J. Vaeth, acting director of the White House Office of Management and Budget.

The memo specifically cited “financial assistance for foreign aid, non-governmental organizations, DEI, woke gender ideology, and the green new deal.”

What student aid may be affected

The U.S. Department of Education said the freeze on federal aid will not affect Federal Pell Grants and student loans. It also has no bearing on the Free Application for Federal Student Aid for the upcoming year.

“The temporary pause does not impact Title I, IDEA, or other formula grants, nor does it apply to Federal Pell Grants and Direct Loans under Title IV [of the Higher Education Act],” Education Department spokesperson Madi Biedermann said in a statement.

In addition to the federal financial aid programs that fall under Title IV, Title I provides financial assistance to school districts with children from low-income families. The Individuals with Disabilities Education Act, or IDEA, provides funding for students with disabilities.

The funding pause “only applies to discretionary grants at the Department of Education,” Biedermann said. “These will be reviewed by Department leadership for alignment with Trump Administration priorities.”

The pause could affect federal work-study programs and the Federal Supplemental Educational Opportunity Grant, which are provided in bulk to colleges to provide to students, according to higher education expert Mark Kantrowitz.

However, many colleges have already drawn down their funds for the spring term, so this might not impact even that aid, he said. It may still affect grants to researchers, which often include funding for graduate research assistantships, he added.

Why the freeze caused confusion

“While the memo says the funding pause does not include assistance ‘provided directly to individuals,’ it does not clarify whether that includes money sent first to institutions, states or organizations and then provided to students,” said Karen McCarthy, vice president of public policy and federal relations at the National Association of Student Financial Aid Administrators.

Most federal financial aid programs are considered Title IV funds “labeled for individual students,” and so would not be impacted by the pause, McCarthy said. But all other aid outside of Title IV is unclear at this time, she said: “We are also researching the impact on campus-based aid programs since they are funded differently.”

“When you have programs that are serving 20 million students, there are a lot of questions, understandably,” said Jonathan Riskind, a vice president at the American Council on Education. “It is really, really damaging for students and institutions to have this level of uncertainty.”

The American Council on Education’s president, Ted Mitchell, called on the Trump administration to rescind the memo.

“This is bad public policy, and it will have a direct impact on the funds that support students and research,” he said. “The longer this goes on, the greater the damage will be.”

Personal Finance

Why you may be getting ‘shortchanged’ on CD interest rates, researcher says

Published

12 hours ago

January 28, 2025

Business Finance News

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You may be leaving money on the table when it comes to certificates of deposit, some research suggests.

CDs have a set term, ranging from a few months to five or more years. Upon maturity, banks return the depositor’s principal plus interest.

Consumers who want their money early must generally pay a penalty, losing out on months of interest. However, paying that withdrawal penalty may be worthwhile for many savers who adopt the right strategy.

That’s what is suggested in a recent research paper from Matthias Fleckenstein, associate professor of finance at University of Delaware, and Francis Longstaff, finance professor at the University of California, Los Angeles.

Rather than pick a short-term CD, consumers often get a higher return by choosing a long-term CD and paying a penalty to pull money out early, they found.

Consumers who are unaware of the strategy may get “shortchanged” by banks, Fleckenstein told CNBC.

‘The rule rather than the exception’

Here’s an example: If an investor puts $1 in a five-year CD with a 5% interest rate and cashes it out after one year with a penalty equivalent to six months of interest, they would receive about $1.03, which is slightly more than the $1.01 they would get from a one-year CD with a 1% interest rate, despite the penalty incurred for early withdrawal.

Banks frequently price CDs this way, Fleckenstein and Longstaff wrote in their paper, published in October in the National Bureau of Economic Research.

The researchers examined weekly CD rates offered by 16,891 banks and branches — ranging from small community banks to big nationwide institutions — from January 2001 to June 2023. Rates were for accounts up to $100,000.

About 52% of CDs offered during that period had such “inconsistencies” in pricing when comparing a given term against a longer-term CD cashed in early, they found.

“It’s the rule rather than the exception,” Fleckenstein said.

“There are banks that do this all the time,” he said, and “there are some that don’t do this at all.”

At banks where this happens, the difference in returns “is not tiny,” Fleckenstein said. In fact, the pricing inconsistency is about 23 basis points, on average, over the roughly two decades they assessed, he said.

Given that disparity, the average investor who invested $50,000 could have gotten an extra $115 of interest by picking a longer-term CD and cashing it in early, their research suggests.

The average size of that pricing difference rose as interest rates began to increase during the Covid-19 pandemic, Fleckenstein said.

CDs often for ‘safety and liquidity’

Households that save in CDs are generally looking for “safety and some liquidity” for a chunk of their assets, said Winnie Sun, co-founder of Irvine, California-based Sun Group Wealth Partners and a member of CNBC’s Financial Advisor Council.

The typical CD buyer has a goal in mind, like saving for a home down payment, and wants to earn a modest interest rate without subjecting their money to much risk, Sun said.

About 6.5% of households held assets in CDs as of 2022, with an average value of about $99,000, according to the most recent Survey of Consumer Finances.

Like any investment, there are pros and cons to CDs.

For example, unlike other relative safe havens like high-yield savings accounts or money market funds, CDs offer a guaranteed return over a set period with no chance of market-based losses. In exchange, however, CDs offer less liquid access to your cash than a savings account and lower long-term returns than the stock market.

“Shop around for the best CD rate across banks, but also look within banks at whether it actually may pay off to accept a longer term but pay an early withdrawal penalty,” Fleckenstein recommended, based on his research findings.

The option may not be as prolific in the current market environment, though.

Long-term CDs typically pay a higher interest rate than shorter-term ones, Sun said. But average rates for one-year CDs are currently higher than those for five-year CDs: 1.7% versus 1.4%, respectively, according to Bankrate data as of Jan. 20.

Households can pursue other CD strategies, Sun said.

For example, instead of putting all savings into a long-term CD, consumers might put a chunk of their money into a long-term CD and with the remaining funds build a “ladder” of shorter-term CDs that mature more quickly. They can then buy more CDs if they’d like once the shorter-term ones come due.