Interest accumulates on Americans’ tax refunds if the IRS is delayed by more than 45 days in providing the refund.
Interest exceeding $10 requires a taxpayer receive a separate 1099-INT form and have to pay taxes on the interest in the next filing season.
This creates a financial and administrative burden on taxpayers whose refunds are delayed through no fault of their own.
Last week, U.S. Reps. Abigail Spanberger of Virginia and Young Kim of California introduced legislation to fix the flaw in the U.S. tax code.
The Cutting Paperwork for Taxpayers Act would remove the requirement and designate the interest that accumulates on a late tax refund as non-taxable income. Millions of individual filers and small businesses will be spared the cost and hassle of reporting interest as additional income.
“I’ve heard directly from Virginia taxpayers who are required to pay extra in taxes due to a delayed refund — and, unfortunately, millions of Americans will likely face this situation this year. Backlogs and delays at the IRS shouldn’t force taxpaying Americans to fill out unnecessary paperwork, nor should they force these taxpayers to pay more to the IRS,” Spanberger said. “Our bipartisan bill would remove a hurdle for taxpayers that’s especially painful when interest rates are high. Today, I’m proud to partner with Congresswoman Kim on rectifying this issue, and I look forward to making this change for Virginians who face this undue burden. We can make it right.”
Kim said that filing taxes is already confusing enough for Americans. They shouldn’t have to fill out more paperwork because of IRS backlogs.
“The Cutting Paperwork for Taxpayers Act will make life easier for taxpayers and close this loophole punishing taxpayers for IRS delays. I am proud to join Rep. Spanberger to introduce this bipartisan bill, and I will keep fighting for commonsense policies that allow families and individuals to keep more of their hard-earned money in their pockets,” Kim said.
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Rebecca Barnabi
