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If your tax refund is still in arrears, there’s good news: Interest can accrue on your balance, and the rate will increase from 6% on January 1 to 7%. IRS.
As of November 18, 2022, 3.4 million unprocessed individual returns have been received, including filings for previous tax years, the agency said. reported.
Adjusted quarterly and linked to the federal short-term rate, 7% interest applies to outstanding refunds and unpaid tax balances.
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“It’s a big jump,” said Shaneya Wilson, a certified public accountant and founder of Fola Financial in New York, and the rate has since doubled. In January, it was 3%.
Generally, the IRS has 45 days after the tax filing deadline to process your return and refund. After that, your “overpayment” starts earning compound interest daily.
7% interest is more than you earn Savings accounts or the New rate for Series I bondsThere is one drawback – the IRS will tax the interest.
In fiscal year 2021, IRS interest payments grew to $3.3 billion, a 33% increase in per capita income from 2020, according to the U.S. Government Accountability Office. reported In April.
What to do if you can’t pay your tax balance
While the 7% interest is a small incentive if you’re still waiting on a tax refund, the new rate makes unpaid balances more expensive, Wilson said.
“You never want to be careless when it comes to the IRS,” he said, adding that the penalties are on top of the interest that accrues after the tax deadline.
The Late filing penalty For federal taxes, 5% of your unpaid balance per month or part of a month, limited to 25%. Late payment fee is 0.5%.
You never want to be complacent when it comes to the IRS.
Shaneya Wilson
Founder of Fola Financial
However, if you are wrestling with a substantial tax balance, You may have optionsWilson said.
With a balance of $50,000 or less, including taxes, penalties and interest, you can Set up an installment plan online, but you should call the IRS for larger amounts, he said. However, you will incur penalties and interest until the due amount is paid.
Another option, known as Offer in compromise, which may allow you to settle for less than you owe if you’ve experienced some type of financial hardship, Wilson said. “Usually they will request an advance payment, but the remaining balance can be paid over time,” he said.
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