IRS Will Pay 5 Percent Interest On Delayed Refunds Starting July 1

The Internal Revenue Service (IRS) said Friday it would pay 5 percent interest to people with delayed tax returns starting in July, up a full percentage point from the last interest rate increase in April.

The agency will also pay 4 percent interest on delayed corporate tax returns, 5 percent on underpayments on tax returns and 7 percent for “large corporate underpayments,” the agency said.

The IRS has paid nearly $14 billion in refund interest in the last seven years, according to a Government Accountability Office (GAO) report published in April.

The GAO said in that report that, the “IRS has experienced several challenges in recent years, including difficulty hiring workers to process returns, implementing notable tax law changes, and managing the 2020 and 2021 filing seasons during the COVID-19 pandemic.”

The number of delayed returns still numbers in the tens of millions, having skyrocketed during the pandemic as the IRS shut facilities and diverted resources to administer benefits like the child tax credit.

By law, the agency has 45 days to process a tax refund. The agency says it gets 90 percent of refunds issued within three weeks.

The IRS warned in January that tax refunds could be delayed due to staffing shortages and processing backlogs.

“The IRS is sitting on 13 million unprocessed tax returns and over 26 million tax returns that are waiting needing further IRS action,” Rep. Tom Rice (R-S.C.) told a House Ways and Means subcommittee hearing on taxpayer fairness earlier this week. “At the same time, IRS phone service levels are near all-time lows, making it nearly impossible to reach an IRS agent for help with tax or audit matters.”

The slow pace at which the IRS is processing returns is costing billions. From May 1, 2020, to April 30, 2021, the IRS paid $3.3 billion in interest to tax filers, triple what the tax agency paid in 2015, according to that Government Accountability Office report.

It’s worth noting that interest payments are taxable and that you must report the interest in your 2022 federal income tax return.


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