Interest on a refund is money the IRS adds to your refund check when they return your money late

When you file your tax return and the IRS owes you money back, they are supposed to send it within a certain timeframe. If they miss that important date, they pay you interest on top of your refund as compensation for the delay. This interest is separate from your actual refund amount — it is extra money the government adds because they held onto your money longer than they should have.

The IRS calls this refund interest, and it works differently from the interest you might earn in a savings account. The IRS sets the rate each quarter based on federal short-term interest rates. The rate changes, but it is typically quite low — often between 6% and 8% per year, though it varies by quarter and has been lower in some recent years.

You do not have to do anything to receive this interest. If the IRS owes it to you, they include it automatically when they send your refund. The interest appears as a separate line item on the check or deposit, or it may be combined with your refund amount depending on how you receive it.

Key Takeaways

  • Refund interest is paid by the IRS when they return your money after the important date, and the rate is set quarterly by the federal government.
  • You do not request refund interest or take any action to receive it — the IRS calculates and includes it automatically if you are may have access to to it.
  • The interest is calculated from the original due date of your return (usually April 15) until the date the IRS actually sends your refund.
  • Refund interest is taxable income in the year you receive it, which means you may owe tax on the interest itself when you file next year.

When the IRS owes you interest on a refund

The IRS has a important date to send refunds, though the exact timeline depends on how you file. If you file electronically and request direct deposit, the IRS aims to send your refund within 21 days. If you file on paper or request a check by mail, the timeline is longer — typically up to six weeks or more.

If the IRS misses these important date, interest starts accruing. The interest clock starts on the original due date of your return — usually April 15 for most people — and runs until the day the IRS actually sends your money. So if you file in February and the IRS sends your refund in June, you earn interest for those months of delay.

Not every late refund triggers interest. If the delay is very short — a few days or a week — the IRS may not calculate interest at all, since the amount would be minimal. But if your refund is significantly delayed, the interest becomes noticeable.

How the IRS calculates refund interest

The IRS uses a formula: your refund amount multiplied by the interest rate, multiplied by the number of days of delay, divided by 365. The interest rate itself changes every three months. The IRS publishes the current rate on their website, and it applies to all refunds delayed during that quarter.

For example, if you are owed a $2,000 refund and the IRS sends it 60 days late, and the interest rate for that quarter is 8%, you would receive roughly $26 in interest (though the exact amount depends on the precise number of days and the exact rate). The IRS does the math for you — you straightforward receive the total.

The calculation is straightforward, but you will not see the detailed math on your refund check. The IRS includes the interest amount, but the breakdown is usually only visible if you contact them or check your account on their website.

Refund interest is taxable income

This is the part that surprises many people: the interest you receive on a refund is taxable. It counts as income in the year you receive it, even though it came from the government. When you file your next tax return, you will need to report this interest as income.

The IRS sends you a Form 1099-INT if your refund interest exceeds $10 in a calendar year. This form lists the interest amount, and you use it to report the income on your tax return. If the interest is less than $10, you still owe tax on it, but the IRS does not send a form — you straightforward add it to your other income.

The amount of tax you owe on refund interest depends on your tax bracket. If you are in the 12% tax bracket, you might owe about $3 in tax on a $26 interest payment. This is why refund interest, while welcome, is not as valuable as it might first appear.

Why refund interest exists

The government is required by law to pay interest on refunds that are delayed beyond the important date. This is meant to compensate you for the time the IRS held your money. Without this requirement, the government could delay refunds indefinitely without any penalty.

The interest rate is intentionally low — it does not fully compensate you for inflation or what you could have earned elsewhere. But it is something. The law treats a delayed refund as a debt the government owes you, and like any debt, it accrues interest.

What to do if you think you should have received interest

If your refund was significantly delayed and you did not receive interest, you can contact the IRS to ask about it. Call the IRS at 1-800-829-1040 or check your account on IRS.gov to see the refund status and any interest paid.

Keep in mind that very small delays may not generate enough interest to be worth calculating. The IRS has some discretion in whether to pay interest on very minor delays, though they are generally required to do so. If you believe you are owed interest and did not receive it, the IRS can review your case.

If you received interest but did not expect it, that is normal — it straightforward means your refund was delayed past the important date. You will report it as income on your next tax return.

Frequently Asked Questions

Do I have to pay tax on refund interest?

Yes. Refund interest is taxable income in the year you receive it. If the interest is $10 or more, the IRS sends you a Form 1099-INT to report it. You add this amount to your income when you file your next return, which may increase the tax you owe or reduce your next refund.

How long does the IRS have to send my refund before they owe interest?

The important date is 45 days from the original due date of your return (usually April 15), though the IRS aims to send refunds much faster — within 21 days for e-filed returns with direct deposit. If your refund arrives after 45 days, interest accrues from day 46 onward.

Can I claim the interest as a deduction?

No. Refund interest is income, not a deductible expense. You cannot offset it against other income or claim it as a loss. You straightforward report it as income and pay tax on it like any other interest earnings.

What if my refund was delayed because I made a mistake on my return?

You still receive interest if the refund is delayed past the important date, regardless of the reason for the delay. The IRS is required to pay interest on late refunds in most cases, even if the delay was caused by an error on your part that required correction.

Is refund interest the same as the interest rate on unpaid taxes?

No. The IRS uses different rates for refund interest and for taxes you owe late. Refund interest is typically lower. The IRS publishes both rates quarterly, and they are calculated separately based on federal short-term interest rates.