Still missing your tax refund? IRS could soon pay you more in interest

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Grover Norquist on taxes, possible expansion of IRS

Americans for Tax Reform President Grover Norquist on the debt ceiling, taxes, spending and infrastructure negotiations and the possible expansion of the IRS. 

Millions of Americans are still awaiting their tax refunds from the IRS, but there is a silver lining: The money may be accruing interest – and rates are poised to jump in October. 

The Internal Revenue Service generally pays interest on refunds that are delayed by more than 45 days after the filing deadline, according to its website.

Interest rates are adjusted every quarter depending on the federal short-term rate. The current interest rate is 5%, but it is slated to increase to 6% on Oct. 1, the IRS announced this week.

Still, there is a downside, which is that the interest paid by the IRS is taxable. 

IRS interest payments surged 33% in the fiscal year 2021, with the tax-collecting agency paying out nearly $3.3 billion for individual returns, the U.S. Government Accountability Office reported.

If you are still waiting for your refund, you can track its status using the IRS' Where’s My Refund tool.  

As of late May, the IRS still had roughly 21.3 million paper returns that it still needed to process, according to a June report from National Taxpayer Advocate Erin Collins. That is a 7% increase from the same time last year, when there were 20 million unprocessed paper returns.

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The Internal Revenue Service (IRS) headquarters in Washington, D.C., U.S., on Friday, Feb. 25, 2022. (Photographer: Al Drago/Bloomberg via Getty Images / Getty Images)

"Unfortunately, at this point the backlog is still crushing the IRS, its employees and, most importantly, taxpayers," Collins wrote in the report. "These processing delays are creating unprecedented financial difficulties for millions of taxpayers and outright hardships for many."

Although more than 90% of taxpayers submitted their returns electronically last year at the request of the IRS, some 17 million sent paper filings, exacerbating the pile-up of returns. It is disproportionately older Americans who file their returns via mail. 

As a result, some taxpayers who submitted paper-filed returns have had to wait an unusually long time to receive their refunds, with wait times routinely exceeding six months. Some Americans have waited 10 months or more, according to the report. 

In a statement, the IRS disputed the tax return figures presented by the national taxpayer advocate, suggesting the actual backlog is closer to 19 million – down slightly from last year's levels. 

U.S. Department of the Treasury Internal Revenue Service (IRS) 1040 Individual Income Tax forms for the 2018 tax year are arranged for a photograph in Tiskilwa, Illinois, U.S., on Monday, March 11, 2019.  (Photographer: Daniel Acker/Bloomberg via Getty Images / Getty Images)

The heap of unprocessed returns stemmed from pandemic-related disruptions, including a worker shortage, the herculean task of administering millions of stimulus checks and adapting to other tax changes in the different COVID-19 relief packages, like boosted child tax credit payments. 

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The IRS has laid out a goal to reach "healthy" levels of inventory by the end of 2022. 

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