The Internal Revenue Service is making progress on its documents backlog, which started in 2020 with COVID-19 pandemic office closures and snowballed. But it's not there yet.
That's distressing news for taxpayers and their tax pros who've been waiting for accounts to be brought up to date.
But there's a tiny silver lining for those whose refunds are among the still-stalled IRS stack.
Inflation has pushed up the interest rate that the IRS will pay on refunds that take longer than 45 days to process and issue.
More interest on overdue refunds: IRS interest rates are adjusted (or not, depending on economic considerations) each quarter.
For the first quarter of 2023, the rate for delayed individual refund amounts will be 7 percent. That's up a percentage point from the fourth quarter of 2022.
It's also the fourth consecutive quarterly increase in the agency's interest rates for individual taxpayers, which is to the federal short-term rate plus 3 percentage points.
The rate had held 3 percent for all of 2021 and the first quarter of 2022.
Rates up for businesses, too: Increases also are coming in next year's first quarter for other refund categories.
The IRS will pay 6 percent interest to corporations that are due refunds. Where corporate refunds exceed $10,000, the rate on the excess will be 4.5 percent.
Taxable interest: While any amount of interest on a delayed refund definitely is welcome, there is a downside. The interest paid by the IRS is taxable income.
And don't ignore it when you file. The IRS will send you a 1099-INT with the amount it paid you. And yes, the IRS will copy itself on that information.
Higher rates, too, on overdue tax: Of course, there is an opposite and less welcome interest rate increase component.
When taxpayers are late paying what they owe in the first three months of 2023, they'll be charged a higher rate on that amount.
The tax agency will charge 7 percent on overdue individual taxes.
Corporations will face a 9 percent rate on owed back taxes that exceed $100,000.
You also might find these items of interest:
- 6 things that could delay your tax refund
- IRS to pay taxpayers $3.3 billion in interest on late refunds (May 2022)
- IRS warns that tax refunds in 2023 might be smaller. Here are 3 reasons why
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