IRS Is On Your Tax Refund? There is a bright spot.

Taxpayers awaiting refunds from Uncle Sam may find some comfort in the knowledge that they will earn 4% interest on Internal Revenue Service payments that are 45 days or more behind schedule. That’s more than double what savings account and money market funds currently being raised.

The IRS started this year’s tax filing season with a backlog of 8 million individual and business filings from the previous year. At the end of April, the agency had a total of more than 15 million unprocessed individual returns from the past tax year and 2020.

Americans may have struggled to get their returns before the April 18 deadlineafter two years in which the IRS extended the tax filing deadline due to the COVID-19 pandemic.

Under the tax law, interest starts accruing 45 days after the mid-April deadline. That means that in those years when taxpayers were granted deferment, the IRS had to make interest payments on repayments for periods prior to when the returns were technically due.

That extra money caused the IRS to pay $3.3 billion in interest to tax authorities in fiscal 2021, a number that has more than tripled since 2021, according to a recent analysis by the Government Accountability Office.

Of course, even making a little extra cash with your refund shouldn’t take the frustration out of waiting for the check.

“Probably not,” replied Bill Smith, the national director of tax technical services at CBIZ Inc., when asked if he thought most Americans know that the government pays interest on late repayments.

“I’d add that they probably don’t care much because it generally won’t be a huge number,” Smith, a former tax attorney with the US Department of Justice, told CBS MoneyWatch. “The sooner they get their money from the government, the happier they are.”

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“People would rather have their money back on time. If you get $3,000 or $4,000, an extra few hundred dollars won’t do much,” said Rob Burnette, financial advisor and CEO of Outlook Financial Center in Troy, Ohio. †

But for those whose repayments have been delayed, a longer wait will likely be rewarded with an even higher interest rate paid by the government. Adjusted quarterly and linked to short-term interest rates, the current 4% rate paid to individual applicants came into effect in April, one percentage point higher than in the previous quarter.

It is likely to rise further as the Federal Reserve tries to contain inflation with further hikes in the key benchmark interest rate, affecting what people pay to borrow and what we are paid to save.

the Fed increased borrowing costs half a percentage point earlier this month and indicated that two more increases are likely in the works. With the central bank’s interest rate set at a range of 0.75% to 1%, a few more hikes could see the IRS pay 5% interest on late repayments in the near term, and 6% by the end of the year. year.

“Essentially it’s the fed funds rate, rounded down, plus 3%,” Burnette noted.

Keep in mind that the interest payments paid by the government are taxable income, he and Smith said.

Taxpayers who owed money from the IRS now usually wait about three weeks to receive an instant deposit, but that’s only for those who filed electronically and “assuming everything is correct and accurate,” Burnette said. Those requesting a check in the mail will have to wait another week or two, he added.

“File electronically and have your refund deposited immediately,” Smith advises. “If you don’t, be patient and enjoy your 4% because one day your check will come and so will your prince,” he joked.

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