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IRS to Pay Interest on Late Tax Returns

It’s no secret that the IRS has millions of tax returns that still need to send out.  While waiting for your tax return can be extremely agitating, there may be one bright spot!  The IRS has 45 days to process your tax return, and if not completed within this timeframe, they will need to pay you interest!

Interest Breakdown:

Currently, the interest rate the IRS will need to pay is a 4% rate (which is likely double your savings account)!  This 4% interest rate is added quarterly, after the initial 45-day period.  For example, if a taxpayer expected to receive an average refund of $2,800, the first time interest is applied their refund will jump to $2,912.  If the taxpayer needed to wait a full year for their refund, the interest accrued would be $362.

Although the IRS will be distributing interest payments on tax refunds, they will still be doing what the agency does best, taking some of your money back!  It is important to note that the interest accrued will be taxed as income, no different than earning interest on a bank account.

Interest Paid Out Already

In 2021, after the mid-April deadline was pushed back, the IRS’s due date to issue refunds was not.  This caused some confusion as the IRS needed to issue interest payments on refunds covering periods ahead of when the returns were due.  The extra money distributed made the total interest payments made total out to $3.3 billion for the fiscal year 2021, according to a Government Accountability Office analysis.

Wrap Up

While interest is being paid out on the late refunds the IRS has yet to distribute, many Americans likely feel that the interest payments are not worth the time they needed to wait for their return.  While this is the case, at least we know the IRS is being held liable for its tardiness.

 
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