The Internal Revenue Service (IRS) pays interest on overpayments, including late refunds, at a rate that varies quarterly. The current interest rate for overpayments made after March 31, 2023, is 8%. This rate applies to both individuals and corporations.
The IRS begins accruing interest on overpayments 45 days after the later of the following dates:
- The due date of the return
- The date the return was filed
- The date the payment was made
Interest continues to accrue until the overpayment is refunded or applied to an outstanding liability.
The IRS may also pay interest on erroneous refunds. If the IRS determines that a refund was issued in error, it may request that the taxpayer repay the refund. If the taxpayer does not repay the refund, the IRS may assess interest on the amount of the refund.
How to Calculate Interest on a Late Refund
To calculate the amount of interest you are owed on a late refund, you will need to know the following information:
- The amount of the overpayment
- The date the overpayment was made
- The applicable interest rate
You can use the following formula to calculate the amount of interest:
Interest = Overpayment Amount × Interest Rate × Number of Days / 365For example, if you overpaid your taxes by $1,000 and the IRS issued the refund 60 days late, the amount of interest you would be owed is $16.44.
Interest = $1,000 × 0.08 × 60 / 365 = $16.44How to Claim Interest on a Late Refund
If you believe that you are owed interest on a late refund, you can file a claim with the IRS. You can file a claim by completing Form 843, Claim for Refund and Request for Abatement. You can also file a claim by writing a letter to the IRS. Your letter should include the following information:
- Your name and address
- Your Social Security number or Individual Taxpayer Identification Number
- The tax year for which you are claiming the refund
- The amount of the refund
- The date the refund was issued
- The reason why you believe you are owed interest
You should mail your claim to the following address:
Internal Revenue ServiceP.O. Box 793Cincinnati, OH 45901Conclusion
If you are owed a refund from the IRS, you may be entitled to interest on the refund if it is issued late. The IRS pays interest on overpayments at a rate that varies quarterly. You can calculate the amount of interest you are owed using the formula provided above. If you believe that you are owed interest on a late refund, you can file a claim with the IRS.
Does the IRS pay interest on late refunds? Here’s what we found
FAQ
What is the interest rate for the IRS refund?
Does the IRS have to pay interest on delayed refunds?
How much interest do I get on a late refund?
What happens if I receive interest on my tax return?
If you receive an interest payment, you must report the interest on your 2020 federal income tax return. If you receive interest of at least $10, the IRS will send you a Form 1099-INT, Interest Income, in January 2021. Individual taxpayers should watch for this payment to arrive in their bank accounts or by mail over the next few weeks.
Should you pay 7% interest if you’re waiting for a tax refund?
While 7% interest is a small boost if you’re still waiting for a tax refund, the new rate also makes unpaid balances more costly, Wilson said. “You never want to be negligent when it comes to the IRS,” she said, explaining there are penalties on top of the interest that accrues after the tax deadline.
Are tax refund interest payments taxable?
Most interest payments will be issued separately from your tax refund. Remember, you’ll know a paper check is an interest payment if it is marked “INT Amount”. For more information, see 13.9 million Americans to receive IRS tax refund interest; taxable payments to average $18.
What if I’m Still Waiting for a tax refund?
If you’re still waiting on a tax refund, you may be earning interest on your unpaid balance, and the rate jumps to 6% on Oct. 1, according to the IRS. Typically, the IRS has 45 days to process your tax return and issue a refund before interest starts to accrue.