IRS interest rate on unpaid refunds and balances will soon be 7%

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If your tax refund is still in limbo, there’s good news: your balance may be earning interest, and the rate is increasing to 7% from 6% on January 1st, according to IRS.

As of November 18, 2022, 3.4 million unprocessed individual returns have been received, including documents from prior tax years, the agency said. informed.

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Adjusted quarterly and linked to the federal short-term rate, a 7% interest rate applies to pending refunds and unpaid tax balances.

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“It’s a big jump,” said Schenea Wilson, a chartered public accountant and founder of Fola Financial in New York, noting that the figure has more than doubled since then. January when it was 3%.

Typically, the IRS has 45 days after the tax filing deadline to process your return and issue a refund. After that, daily interest begins to accrue on your “overpayment”.

While 7% per annum is more than what you’ll earn from savings accounts or the new Series I bond rate, there’s a downside—the IRS interest is tax-deductible.

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During fiscal year 2021, IRS interest payments rose to $3.3 billion, up 33% from 2020, for individual income, U.S. Government Accountability Office. informed in April.

What to do if you can’t pay your tax balance

You never want to be careless when it comes to the IRS.

Sheneya Wilson

Founder of Fola Financial

However, if you’re struggling with a significant tax balance, you may have options, Wilson said.

With a balance of up to $50,000, including taxes, penalties and interest, you can pay in installments online, but you’ll have to call the IRS for more, she said. However, you will still be charged penalties and interest until the balance is paid off.

Another variant known as offer in compromise, may allow you to settle for less than you owe if you’ve gone through some kind of financial hardship, Wilson said. “Usually they are going to ask for an upfront payment, but the rest of the amount can also be paid over time,” she said.

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