Virginia tax refunds are not taxable income at the federal level, but you may owe Virginia state tax on the interest your refund earned
A refund of taxes you already paid is not income — it is your own money coming back. The IRS does not tax the refund itself. However, if your Virginia refund sat in the state's account for months before you received it, Virginia paid you interest on that money. That interest is taxable as income, both federally and to Virginia.
The amount of interest depends on how long the state held your refund. Virginia calculates interest daily from the due date of your return until the refund is issued. The rate changes quarterly and is set by the Virginia Department of Taxation. For 2024, the rate is 8 percent annually, though this varies year to year.
You will receive a Form 1099-INT from Virginia if the interest paid on your refund reaches $10 or more. You report this interest on your federal return on Schedule 1 (Form 1040), line 8, as taxable interest income. You also report it on your Virginia return.
Key Takeaways
- The refund itself — the money Virginia owed you — is not taxable income at any level.
- Interest paid on a delayed refund is taxable income both federally and to Virginia, and you will receive a Form 1099-INT if the interest is $10 or more.
- Virginia's interest rate on refunds changes quarterly and is set by the Department of Taxation, not a fixed percentage.
- If you do not receive a Form 1099-INT but believe you should have, contact the Virginia Department of Taxation to request one.
How Virginia calculates interest on refunds
Virginia begins calculating interest the day after your return's due date — not the day you filed, but the day it was due. If you filed on time and are owed a refund, the clock starts on April 16 (for most individual returns). If you filed late, interest still starts from the original due date, not your filing date.
The state calculates interest daily at the quarterly rate set by the Virginia Department of Taxation. The rate is published in the Virginia Register and applies to all refunds issued during that quarter. Because the rate changes, a refund issued in January may earn a different rate than one issued in April, even if both returns were filed in the same year.
Most refunds are issued within 30 to 60 days of filing, which means the interest accrued is often small — sometimes less than $1. Refunds delayed beyond that window accumulate more interest. A refund delayed six months at 8 percent annual interest would earn roughly 4 percent of the refund amount.
When you receive a Form 1099-INT for refund interest
Virginia mails Form 1099-INT to you and to the IRS if the interest on your refund reaches $10 or more in a single tax year. The form arrives by January 31 of the year following the refund. It shows the interest amount in Box 1 (Interest income).
The form lists Virginia as the payer, and the interest is reported under Virginia's federal employer identification number. You use this form to report the interest on your federal return and your Virginia return. If you do not receive the form by early February, contact the Virginia Department of Taxation at 804-367-8031 to request a copy or verify that one was issued.
If your refund earned less than $10 in interest, Virginia does not issue a Form 1099-INT, but you are still required to report the interest as income on both your federal and Virginia returns. You can find the interest amount on your refund check stub or by logging into your Virginia tax account online.
Reporting refund interest on your tax returns
On your federal return (Form 1040), you report refund interest on Schedule 1, line 8, as taxable interest income. This increases your federal taxable income for the year. The interest is subject to federal income tax at your marginal rate.
On your Virginia return (Form 760), you report the same interest on line 2 of the Virginia Adjusted Gross Income section. Virginia taxes this interest at your Virginia state rate. Because Virginia allows a federal tax credit, the state tax on the interest is reduced by the federal tax you paid on it, but you still owe Virginia tax on the full amount.
If you received a Form 1099-INT, attach a copy to your federal return. Keep your copy for your records. If you did not receive a form but earned interest under $10, write "Interest on Virginia tax refund" on Schedule 1 and enter the amount.
Why refunds are delayed and how to check the status of yours
Most Virginia refunds are issued within 30 to 60 days of filing if you file electronically and request direct deposit. Refunds delayed beyond that are usually held because of a discrepancy between your return and Virginia's records — a missing Social Security number, a name mismatch, or income reported by an employer that does not match your return.
You can check the status of your Virginia refund online through the Virginia Department of Taxation's website. You will need your Social Security number, the tax year, and the refund amount. The tool shows whether the refund has been issued and, if not, whether there is a hold or issue preventing release.
If your refund is delayed, the interest continues to accrue daily. Resolving the underlying issue — providing missing information or correcting a discrepancy — usually releases the refund within two to four weeks. Once issued, the interest calculation stops, and you will receive the refund plus all accrued interest.
Interest on refunds from amended returns
If you file an amended Virginia return (Form 760-A) and are owed an additional refund, Virginia calculates interest from the original due date of your return, not from the date you filed the amendment. This means an amended return filed years later may still earn interest back to the original April due date.
The interest rate used is the rate in effect when the refund is actually issued, not the rate in effect on the original due date. This can work in your favor if rates have dropped, or against you if rates have risen.
Amended refunds typically take longer to process than original returns — often 60 to 90 days. During this time, interest continues to accrue at the current quarterly rate.
What to do if you think you are owed interest but did not receive it
If your refund was delayed significantly and you did not receive a Form 1099-INT or see interest on your refund check, contact the Virginia Department of Taxation. You can call 804-367-8031 or use the online refund status tool to request a detailed accounting of your refund, including the interest calculation.
The department will provide a breakdown showing the refund amount, the dates the interest was calculated, the rate applied, and the total interest paid. If an error occurred in the calculation, the department can issue a corrected Form 1099-INT or a separate interest payment.
Keep your refund check stub or deposit confirmation showing the amount received. This helps the department verify whether interest was included in the deposit or issued separately.
Frequently Asked Questions
Do I have to report interest under $10 on my tax return?
Yes. Even if Virginia does not issue a Form 1099-INT because the interest is under $10, you are required to report the interest as income on both your federal and Virginia returns. The $10 threshold is only for issuing the form, not for reporting the income.
Can I deduct the federal tax I paid on refund interest?
No. Interest on a tax refund is not deductible. It is taxable income, and you pay tax on it, but you cannot deduct it as a loss or expense. The federal tax credit Virginia allows reduces your Virginia tax liability, but it does not create a deduction.
What if my refund was issued in one year but the interest was paid in the next year?
Report the interest in the year you received it. If your refund was issued in December 2023 but the interest was paid in January 2024, the interest is reported on your 2024 return, not your 2023 return. The Form 1099-INT will show the year the interest was paid.
Does Virginia tax refund interest count toward my income for other programs?
It depends on the program. Refund interest is counted as taxable income for federal purposes, so it may affect your income for programs like the Earned Income Tax Credit, Medicaid, or student loan repayment plans. Check the specific program's income rules.
Why does Virginia pay interest on refunds at all?
Virginia law requires the state to pay interest on refunds held beyond a certain period as compensation for the time the state held your money. The interest rate is set quarterly to reflect the cost of borrowing or the return on short-term investments, and it ensures taxpayers are not penalized for delays caused by the state.