Yes, the IRS pays interest on money you overpay in taxes
When you pay more tax than you owe, the IRS sends you a refund. If that refund takes longer than a certain amount of time to reach you, the IRS also pays you interest on the overpaid amount. This interest is calculated from the date you overpaid until the date the IRS issues your refund check or applies it to a future tax bill.
The interest rate changes every three months and is set by federal law. The IRS does not decide the rate — it is tied to the federal short-term interest rate plus 3 percentage points. Because the federal rate moves, the IRS interest rate on overpayments varies throughout the year.
You do not have to do anything to receive this interest. The IRS calculates it automatically and includes it in your refund if one is issued.
Key Takeaways
- The IRS pays interest on overpayments only if your refund is delayed beyond a certain threshold, which is typically 45 days from the return due date or filing date, whichever is later.
- The interest rate is set by federal law and changes quarterly, so the amount you receive depends on when your overpayment occurred and when your refund was issued.
- Interest accrues from the date of overpayment until the date the IRS issues your refund or applies it to a future tax bill.
- You cannot request a higher interest rate or negotiate the amount — the IRS calculates it based on the statutory rate in effect during the period your money was held.
When the IRS starts paying interest on your overpayment
The IRS does not pay interest on every overpayment. Interest only begins to accrue if your refund is not issued within 45 days of the later of two dates: the due date of your return (usually April 15) or the date you actually filed your return.
For example, if you file your 2023 return on March 1, 2024, and the IRS does not issue your refund by April 15, 2024 (45 days from the April 15 due date), interest begins accruing on April 16. If you file on June 1, 2024, the 45-day clock starts from June 1, and interest begins on July 16 if no refund has been issued by then.
Most refunds are issued within 21 days of filing electronically, so most taxpayers do not receive interest. Interest becomes more common when the IRS needs to verify information on your return, when you claim certain credits like the Earned Income Tax Credit, or when there are processing delays.
How the IRS calculates the interest rate
The interest rate on overpayments is set by Section 6621 of the Internal Revenue Code. The rate equals the federal short-term interest rate plus 3 percentage points, rounded to the nearest whole percent. The IRS announces the new rate every three months: January, April, July, and October.
Because the federal rate changes based on economic conditions, the IRS overpayment rate has varied significantly over time. In recent years it has ranged from less than 1 percent to over 8 percent, depending on the quarter. You can find the current and historical rates on the IRS website under "Interest Rates."
The rate that applies to your overpayment is the rate in effect during the quarter in which interest begins to accrue. If your refund spans two quarters, the IRS calculates interest using the rate for each quarter separately.
How much interest you will receive
The amount of interest depends on three things: the size of your overpayment, the interest rate during the period your money was held, and how long the IRS held it. The longer the delay, the more interest accrues.
For a small overpayment of a few hundred dollars held for a few months, the interest may be only a few dollars. For a larger overpayment held for many months, the interest can be more substantial. The IRS calculates interest daily using a daily compounding method, though the difference between daily and straightforward interest is usually small.
You can estimate your interest by multiplying your overpayment amount by the applicable quarterly rate and the number of days the IRS held the money, then dividing by 365. However, the IRS's exact calculation may differ slightly because of how they handle partial quarters and rounding.
Where the interest appears on your refund
If the IRS owes you interest, it will be included in your refund check or direct deposit. The interest is not shown as a separate line item on most refund documents — it is straightforward added to the total amount you receive. Your refund notice will show the original overpayment amount and the interest separately so you can see both figures.
If you have other tax debts from previous years, the IRS may explore your refund (including the interest portion) to those debts instead of sending it to you. This is called an offset. In that case, you will not receive the interest as cash, but it will reduce the amount you owe on the older debt.
Interest on overpayments applied to next year's taxes
You can choose to explore your overpayment to your next year's estimated tax instead of receiving a refund. If you do this, you do not receive interest on the amount applied forward. The interest only accrues if the IRS is holding your money and delaying a refund to you.
This is one reason some taxpayers prefer to receive a refund rather than explore the overpayment to the next year — they get the interest payment along with their money back. However, the interest amount is usually small enough that this should not be the main factor in your decision.
What happens if the IRS owes you interest but does not pay it
If you believe the IRS has not paid you the interest you are owed, you can contact the IRS to request a recalculation. You will need to provide documentation of when you filed, when you received your refund, and the applicable interest rate for the period in question.
If the IRS agrees that interest was owed and not paid, they will issue an additional refund for the interest amount. This process can take several weeks. You can also file a claim for refund on Form 1040-X (Amended U.S. Individual Income Tax Return) if you want a formal record of the claim.
Frequently Asked Questions
Can I request a higher interest rate on my overpayment?
No. The interest rate is set by federal law and applies to all taxpayers equally. The IRS does not have the authority to pay a higher rate, and you cannot negotiate or request an exception. The rate in effect during the quarter your interest accrues is the only rate that applies.
Do I owe taxes on the interest the IRS pays me?
Yes. Interest paid by the IRS on an overpayment is taxable income and must be reported on your next tax return. The IRS will send you a Form 1099-INT if the interest exceeds a certain threshold, though you must report all interest regardless of whether you receive the form.
What if I filed my return late — do I still get interest?
Yes. The 45-day clock starts from whichever is later: the due date of your return or the date you filed. If you filed late, the clock starts from your filing date. Interest accrues from day 46 onward if your refund has not been issued by then.
How long does it take to receive interest on an overpayment?
Interest is included in your refund when it is issued. If your refund is delayed 45 days or more, the IRS calculates the interest owed and adds it to the refund amount. The entire refund, including interest, is then sent to you by check or direct deposit.
Can the IRS keep my overpayment and not pay interest?
The IRS can explore your overpayment to other tax debts you owe (called an offset), but they still owe you interest on the amount held if it exceeds 45 days. If your refund is offset to pay a prior-year debt, you do not receive the interest as cash, but it reduces what you owe on that older debt.