Americans Earning More Interest on Late Tax Refunds

The Internal Revenue Service is set to pay billions in interest to tax filers as it struggles to process tax refunds.

That’s according to a Monday (May 9) report from the Wall Street Journal, which noted that the IRS has raised the rates it pays individuals waiting on their refunds, from 3% to 4%, with the rate for large corporate refunds now at 1.5%, up from 0.5%.

The IRS typically has 45 days to process a tax return and issue a refund. Beyond that, interest starts to accrue. In fiscal year 2021, the service paid $3.3 billion in interest to tax filers, more than three times the amount in 2015, according to the Government Accountability Office (GAO).

For the fiscal year that began in October, refund interest payments through March dropped 11% but were still higher than 2019 levels, according to Treasury Department data.

“It’s not a small amount of money,” said Jessica Lucas-Judy, director of tax issues at GAO. “If there’s some way to avoid some of these payments, that’s probably a good thing.”

The Journal said the IRS has been slower than usual at processing returns, with the Biden administration blaming years of Republican-backed budget cuts. Republicans argue the IRS hasn’t prioritized taxpayer service.

As of April 29, the agency has 9.6 million unprocessed individual tax returns, some from tax year 2020 and some from 2021. The agency says it hopes to clear the backlog by the end of the calendar year.

See also: Bridging the Tax Refund Disbursement Gap

Last year, PYMNTS reported on an effort by the IRS to urge consumers to get direct deposits instead of paper tax refunds for easier disbursement.

The agency has also promoted the benefits of filing taxes digitally rather than filling out paper returns, changes that will allow consumers to more quickly complete their filings and receive their returns while helping the IRS to catch up on its backlog of unprocessed returns from the earlier tax seasons.