IRS Processing Delays for Refunds Result in $3 Billion in Interest Payments
It’s tax filing season again, and as we are often reminded, failing to get your returns filed on time means you could be forced to pay penalties and interest.
What happens if the IRS is late getting you a tax refund? It’s required to pay you interest. And according to the Government Accountability Office, the IRS paid more than $3 billion in interest on refunds that didn’t get paid on time – a 50 percent increase over 2019:
The GAO said:
IRS’s overall 2020 performance was significantly impacted by its reliance on manual processes such as for paper returns, and its limited ability to process returns remotely while processing centers were closed. As a result, as of December 2020, IRS had a significant backlog of unprocessed returns and taxpayer correspondence. Additionally, costs increased including interest on delayed refunds which exceeded $3 billion in fiscal year 2020. IRS has not revised its estimates for addressing all of the backlog due to operational uncertainties created by the pandemic.
The GAO also noted that the coronavirus wasn’t entirely to blame for the backlog, and the sharp rise in interest payments. The payments have been rising for several years – and have their root in the agency’s reliance on paper returns.
As for the 2019 backlog…it’s still very big:
As of Jan. 29, the IRS said it still had 6.7 million individual 2019 tax returns in its “processing pipeline.” And now the agency is dealing with an influx of returns for the current filing season. As of Feb. 19, the IRS reported receiving close to 35 million returns. Of those returns received, more than 16 million indicated taxpayers were owed refunds, averaging $2,880.
And the interest the IRS pays for its delays? It’s not free money. It “is considered taxable income.”
Image Credit: By Joshua Doubek (Own work) [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons