Does The IRS Owe Me Interest on My Tax Refund?

As a taxpayer, you diligently file your tax returns and eagerly await your refund, hoping it will arrive promptly. Unfortunately, the Internal Revenue Service (IRS) can sometimes experience delays in processing and issuing tax refunds. When this happens, you may be wondering if the IRS will owe you interest on an overdue tax refund. After all, they impose hefty penalties and interest fees if you fail to pay them on time. The good news is that the IRS is also held accountable when it fails to pay you promptly.

Does The IRS Pay Interest on Overdue Tax Refunds?

Yes! The IRS has 45 days to disburse a tax refund before interest will accrue. The start of those 45 days, however, varies. For most taxpayers, interest will kick in 45 days after the filing deadline, as long as their returns were filed on time. During most tax years, this means you’ll get paid more if your refund is not disbursed by June 1. If you file your return late or have to resubmit it, however, the clock doesn’t start ticking until the date it is received. Just remember that you have up to three years after the original filing deadline to submit a late return and request your tax refund. If you file after the 3-year mark, you’ll forfeit that money.  

How Much Will I Get Paid?

The IRS interest rate is currently 8% for individual overpayments (refunds due).  This amount is compounded daily. Interest will accrue on any unpaid tax refund (after 45 days) until it is disbursed.

For example, if you are due a $1,200 refund and it takes the IRS nearly 10 months (after the initial 45 days) to send it to you, you should expect a total of $1,282.72 (see below) if the interest rate remains the same (8%).

The IRS adjusts its interest rates quarterly, so the amount could be less or more depending on the new rates. Thankfully, the IRS will include the interest payment with your refund if you meet the criteria for receiving it.

How Do I Dispute The Interest Received?

If you think the IRS did not pay you the correct amount in interest fees, you can file an informal claim by submitting a written letter outlining the amount you believe is due and providing the legal or factual basis for your claim. You may also file Form 843, Claim for Refund and Request for Abatement, to request the additional interest due. Be sure to include your computation and reason for requesting additional interest on Line 7. Any request for reconsideration of interest fees paid must be made within six years of your scheduled refund.  

Do I Have to Pay Taxes on The Interest Received?

So, here’s the bad news about interest paid on delayed tax refunds. Any amount received must be reported as taxable income when you file your return the following year. If it’s over $10, the IRS will likely send you a 1099-INT. But, even if you don’t receive the form, you are required to pay taxes on the interest paid to you.

Steps to Take If Your Refund is Late

If you’ve been waiting for your tax refund longer than expected, there are several steps you can take to address the situation.

1. Check the status. Visit the “Where’s My Refund?” page on the IRS website or download the IRS2Go mobile app to track your refund.
2. Contact the IRS. If you’ve waited longer than the expected processing time (21 days), you can call 800-829-1040 to inquire about the status of your refund.
3. Initiate a refund trace. If you’ve waited more than 12 weeks, you can request a tax refund trace by calling the IRS at 800-829-1954. You can also submit Form 3911, Taxpayer Statement Regarding Refund.

By understanding the process and your rights as a taxpayer, you can ensure that you receive not only your rightful refund but also any interest payments due.

If you’re experiencing delays in receiving your tax refund or have questions about interest payments, consider consulting a tax professional or seeking guidance from a reputable tax preparation service. They can provide personalized advice, assist with filing claims, and ensure you receive the full amount owed to you by the IRS.