Millions of Americans are receiving delayed refunds with accumulated interest that, by a quirk in the U.S. tax code, are subject to taxes.
Legislation introduced by Reps. Abigail Spanberger (D-VA-07) and Rodney Davis (R-IL-13) today would fix that.
Under current regulations, when the IRS is delayed by more than 45 days in providing a tax refund, interest begins to accumulate on these refunds. However, any interest received due to a delayed refund is subject to taxes — unlike the refund itself.
The bipartisan bill — the Freeing Americans’ Interest Reimbursements from Improper Governmental Holdover Taxes (FAIR FIGHT) Act — would designate the interest that accumulates on a late tax refund as non-taxable income.
This change would spare the nearly 14 million Americans that are projected to receive interest on their refunds this year the cost and hassle of having to report their interest as additional income on a separate 1099-INT.
“During this moment of economic uncertainty, we should be reducing unnecessary financial burdens for the American people — not making working Americans pay extra taxes because their refunds were delayed due to slowdowns at the IRS. Many Central Virginians plan to use their refunds to pay an outstanding expense, invest in their families, or contribute to their savings — and interest on these delayed refunds should not be subject to tax,” Spanberger said. “Our bipartisan legislation is a commonsense step to remove an undue hurdle for American taxpayers, and I’m proud to stand with Congressman Davis in introducing this bill. The FAIR FIGHT Act would provide an easy fix to a flaw in our tax code and take a straightforward step to strengthen our economy, give families peace of mind, and increase the ability of American consumers to save for their futures.”
“The COVID-19 pandemic has created delays in processing tax refunds to families across the country, which has resulted in the IRS sending interest payments on delayed refunds that often result in taxpayers unnecessarily owing additional taxes,” Davis said. “These interest payments force taxpayers to file additional tax forms that sometimes prove to be complicated and expensive, especially for as little as $8 in interest. I am proud to introduce the bipartisan FAIR FIGHT Act with Rep. Spanberger to ensure that taxpayers don’t have to pay taxes on interest payments, particularly those negligible in dollar amount, that they have received through no fault or investment of their own.”
According to AARP, 13.9 million U.S. taxpayers will receive a check averaging $18 on the interest on their refunds.
Click here to read the full bill text.
Share
AFP
