Refund Late? The IRS May Owe You Interest

Tina Orem
By Tina Orem 
Refund Late? The IRS May Owe You Interest

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The IRS imposes plenty of consequences on taxpayers who miss its April filing deadline, including late-filing penalties, late-payment penalties, and interest on overdue tax bills. But you get to hold the IRS accountable for missing a deadline, too. Here’s what you need to know.

The IRS has a deadline for paying refunds

Most taxpayers receive their refunds within three weeks of filing, but it can take longer, says Paul Herman, a certified public accountant based in White Plains, New York. And if the IRS doesn’t issue yours within 45 days of accepting your return, it owes you interest for each additional day.

The clock starts on the April tax deadline or the date you filed, whichever is later. But filing two years late and finding out you were owed a refund the whole time doesn’t entitle you to two years of interest, Herman warns.

You probably won’t have to bill the IRS

The IRS should keep you informed of major developments in your refund process and track the interest it owes you. But if you're curious, there are two major ways you can keep an eye on your refund:

  • You can check your return status at about 24 hours after the IRS receives your e-filed return or four weeks after you mail a paper return. The IRS updates the site once a day, and it indicates whether your return was received, whether your refund is approved and whether the IRS has sent it to you.

  • If it has been at least 21 days since you e-filed or more than six weeks since you mailed your paper return, you can check on your refund by calling the IRS at 1-800-829-1040. But don’t expect a quick resolution: “Given our limited resources, our phone lines are going to be extremely busy this year — and there will frequently be extensive wait times,” the IRS warns.

The IRS automatically adds any interest it owes to your refund, according to Cindy Hockenberry, director of education and research for the National Association of Tax Professionals.

Taxpayers who think they’ve been shorted on interest should call the IRS Taxpayer Advocate office at 1-877-777-4778, Hockenberry advises.

Refund theft can complicate interest payments

If you discover criminals have filed a fraudulent return in the hopes of stealing your refund — which is a growing concern for many taxpayers — you should alert the IRS. But beware: Those investigations typically take at least four months.

“An identity-theft victim whose refund is delayed should be paid interest if their submitted return was in processible form and the refund was delayed more than 45 days,” according to an IRS spokesperson. But whether that rule applies consistently depends on whom you ask.

Hockenberry, who is a recent victim of tax-refund theft herself, says the IRS didn’t give her a clear answer about whether her refund would accrue interest during the investigation. And Bill Smith, a managing director for the national tax office of accounting firm CBIZ MHM, says he hasn’t seen anyone receive interest in an identity theft case.

A delay might not be so bad

A few days’ worth of IRS interest payments probably won’t change your life, but they do provide a decent return: 4% for the second quarter of 2016.

“It's better than bank interest. I guess you could let them hold it for a little bit,” Farmington Hills, Michigan-based CPA and attorney Chelsea Rebeck says.

But, she adds, if the IRS shells out interest on your late refund, remember: It’s taxable.

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This article was written by NerdWallet and was originally published by USA Today.

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