IRS tax refunds may increase in January

IRS tax refunds may increase in January

Millions of Americans are waiting for 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 January.

The refunds that are delayed more than 45 days after the filing deadline are paid interest, according to the website.

Interest rates are adjusted every quarter based on the federal short-term rate. The current interest rate is 6%, but it is expected to increase to 7% on January 1. One year ago, the interest rate was at 3%.

The IRS had to process 3.7 million returns this year, including 1.7 million returns that require error correction or other special handling, and an additional 2 million that are paper returns waiting to be reviewed and processed.

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

The tax-collecting agency paid nearly $3.3 billion for individual returns in the fiscal year 2021, but some 17 million sent paper filings exacerbating the pile-up of returns, according to the U.S. Government Accountability Office. 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. Americans have waited 10 months or more, according to a report from the National Taxpayer Advocate.

The herculean task of administering millions of stimulus checks and adapting to other tax changes, like boosted child tax credit payments, resulted in a heap of unprocessed returns due to pandemic-related disruptions.

If you are still waiting for your refund, you can track its status using the IRS' tool.

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

Taxpayers are usually given a refund if they have too much money withheld and overpaid their taxes the previous year. Nearly three-quarters of filers received a tax refund in 2022, with an average payment of $3,176, up from $2,800 in 2021.