The IRS counts refund interest as taxable income
Yes, interest paid on your tax refund is taxable. The IRS treats it as ordinary income for the year you receive it. If you get a refund check in 2024 and it includes interest because the IRS was late paying you, that interest amount counts toward your 2024 income and must be reported on your 2025 tax return.
The IRS only pays interest when it owes you money for more than 45 days after the original due date of your return. The interest rate changes quarterly — it is the federal short-term rate plus 3 percent. For 2024, the rate was 8 percent per year. The longer the IRS holds your refund, the more interest accrues, and the more you owe tax on.
This rule applies whether you receive the refund by direct deposit, check, or any other method. The taxable amount is only the interest portion, not the refund itself.
Key Takeaways
- Refund interest is reported as income on your next tax return using Form 1040, Schedule 1, line 8i (or the equivalent line for your filing status).
- The IRS sends you a Form 1099-INT if your refund interest exceeds $10, but you must report it even if you do not receive the form.
- Interest accrues only when the IRS holds your refund more than 45 days past the original due date of your return.
- The interest rate is set quarterly by the IRS and varies year to year — it was 8 percent in 2024.
Where to report refund interest on your tax return
You report refund interest on Form 1040, Schedule 1, which is the supplemental income schedule. The line is line 8i, labeled "Interest from U.S. Savings Bonds issued after 1989." Despite the label, this is where the IRS directs you to report refund interest.
If you use tax software, the program will ask you about refund interest during the interview. You enter the amount, and the software places it on the correct line automatically. If you file by hand, write the amount on line 8i and add it to your other income on Form 1040.
The interest is added to your total income for the year, which means it can push you into a higher tax bracket or reduce tax credits you would otherwise receive. For most people the amount is small — often under $50 — but it still counts.
How to know the exact interest amount you received
If your refund interest is $10 or more, the IRS sends you a Form 1099-INT in January or February of the following year. This form shows the interest paid in box 1. Keep this form with your tax records.
If your interest was less than $10, you will not receive a 1099-INT, but you still must report it. Check your refund check stub or your IRS account online at irs.gov. Log in to "View Your Tax Account" and look for the refund details, which will show any interest paid separately from the refund amount itself.
If you received your refund by direct deposit, the interest was deposited to the same account as the refund. Your bank statement will show the total deposit, but the IRS letter or your online account will break down how much was refund and how much was interest.
When the IRS pays interest on refunds
The IRS pays interest automatically — you do not have to ask for it. Interest begins accruing 45 days after the later of two dates: the date your return was due (usually April 15) or the date you actually filed your return.
If you filed your return on March 1 and the IRS did not send your refund until July 1, interest accrues from May 15 onward (45 days after April 15). If you filed late on June 1 and the refund came on August 1, interest accrues from July 16 onward (45 days after June 1).
The IRS calculates interest daily and compounds it. The longer the delay, the more interest you receive — and the more you owe tax on. This is one reason filing early can matter: if the IRS processes your return quickly, you may not hit the 45-day threshold at all.
Interest rates change quarterly
The IRS sets the refund interest rate every quarter. The rate is the federal short-term rate (set by the Treasury Department) plus 3 percentage points. This means the rate varies depending on when your refund was processed.
In 2024, the rate was 8 percent. In 2023, it was 8 percent for most of the year. In 2022, it started at 4 percent and rose to 8 percent by the end of the year. You can find the current and historical rates on the IRS website under "Interest Rates."
The rate that applies to your refund is the one in effect during the quarter when the IRS paid you. If you received your refund in January 2024, the January–March 2024 rate applied to your interest. This is why two people with the same refund amount and the same delay may receive different interest amounts.
What happens if you do not report the interest
If you receive a Form 1099-INT and do not report the interest on your tax return, the IRS will catch the discrepancy when it matches your return to the 1099-INT. This can trigger an audit notice or a correction notice asking you to pay the tax you owe on that interest, plus any penalties and interest on the unpaid tax.
Even if you do not receive a 1099-INT (because the interest was under $10), you are still required to report it. The IRS does not always enforce this for very small amounts, but the law requires it. It is safer and simpler to report it than to risk an audit.
The tax on refund interest is usually small. If you received $50 in interest and you are in the 22 percent tax bracket, you owe about $11 in tax on that interest. But that $11 is still a debt to the IRS if you do not report it.
Refund interest and tax credits
Refund interest counts as income, which means it can reduce certain tax credits. The most common impact is on the Earned Income Tax Credit (EITC) and the Child Tax Credit, both of which phase out as income rises.
If your refund interest pushes your income over a phase-out threshold, you may lose part of a credit you would otherwise receive. For example, if you are close to the EITC income limit and you receive $100 in refund interest, that $100 counts toward your income and may reduce your credit by $15 to $40, depending on your situation.
This is rare for most people because refund interest amounts are usually small. But if you received a large refund that was delayed for many months, it is worth checking whether the interest affects your credits.
Frequently Asked Questions
Do I have to pay tax on the refund itself, or just the interest?
Only the interest is taxable. The refund itself is your own money being returned to you, so it is not income. Only the interest the IRS paid you for holding your money counts as taxable income.
What if I never received a Form 1099-INT but I got refund interest?
Check your IRS account online or the letter that came with your refund. If the interest was under $10, the IRS does not send a 1099-INT, but you still must report it on your return. Use the amount shown in your IRS records.
Can I deduct the tax I pay on refund interest?
No. Refund interest is ordinary income, and there is no deduction for the tax you owe on it. You simply report the interest as income and pay tax on it at your normal rate.
Does refund interest count as earned income for the EITC?
No. Refund interest is unearned income. It counts toward your total income for EITC purposes, which can reduce your credit, but it does not count as earned income itself.
What if the IRS made a mistake and paid me interest I should not have received?
Contact the IRS at 1-800-829-1040 to report the error. The IRS will correct its records and may issue you a revised 1099-INT. You should still report whatever interest you actually received on your tax return, and the IRS will sort out the correction on its end.