IRS to pay 5 percent interest to individuals with delayed tax refunds

The IRS will start paying 5 percent in guaranteed interest to individuals with delayed tax returns beginning in July, up a percentage point from the last interest rate hike that took effect 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 IRS said Friday.

The federal government regularly spends billions of dollars in interest on delayed returns. The IRS has paid out almost $14 billion in refund interest in the last seven fiscal years, according to a Government Accountability Office (GAO) report published in April.

The GAO estimated such payments totaled $3.3 billion in fiscal 2021 alone.

“IRS does not identify, monitor, and mitigate issues contributing to refund interest payments. Accordingly, IRS is missing an opportunity to reduce costs,” the watchdog report said.

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 3 weeks.

“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.”

Some Democrats have advocated for more IRS funding while accusing Republicans of hamstringing the agency to preserve de facto tax perks resulting from uneven enforcement.

“I’ll cut right to the heart of the matter for those families whose refunds might be delayed due to IRS backlogs,” Senate Finance Committee Chairman Ron Wyden (D-Ore.) said in an April statement. “If you’re frustrated by poor customer service from the IRS, you’ve got years and years of Republican cuts to blame for gutting the agency’s ability to meet your expectations.”

“For all the talk about running the government more like a business, Republicans seem to want to turn government into the kind of dysfunctional business that never has a repeat customer.”

Republicans, meanwhile, worry that increasing funding for the IRS will lead to tens of thousands of more federal employees focused on tax enforcement.

“President Biden’s plan to supercharge the IRS with $80 billion in mandatory funding and 87,000 new IRS agents will lead to drastically higher audit rates for all Americans at every income level, according to the Congressional Budget Office,” House Ways and Means Republicans said in a Wednesday statement.

Rep. Bill Pascrell (D-N.J.), the chairman of the House Ways and Means Oversight Subcommittee, has called for the resignation of IRS Commissioner Charles Rettig, a Trump appointee.

“Mr. Rettig has had plenty of time and plenty of cooperation to begin the crucial work of fixing the IRS. There needs to be real accountability. President Biden must replace Mr. Rettig immediately and also nominate a Chief Counsel for IRS,” Pascrell said last week.