Interest on your refund is taxable income
Yes. If the IRS pays you interest on a tax refund, that interest counts as taxable income in the year you receive it. The IRS treats refund interest the same way it treats interest from a bank account or a savings bond — it is income, and you report it on your tax return.
The IRS only pays interest when your refund is delayed beyond a certain number of days. The current threshold is 45 days from the date the IRS receives your return or the date you filed, whichever is later. If your refund arrives within 45 days, you get no interest. If it takes longer, the IRS calculates interest from day 46 forward at a rate set quarterly — for 2024, that rate is 8 percent per year.
You do not have to do anything to receive the interest; the IRS adds it to your refund check or direct deposit automatically. But you will need to report it when you file your next tax return.
Key Takeaways
- Interest paid by the IRS on a delayed refund is taxable income and must be reported on your next tax return.
- The IRS pays interest only when your refund is delayed more than 45 days from when they received your return or the date you filed, whichever is later.
- The interest rate changes quarterly and is set by federal law; for 2024 it is 8 percent per year.
- You will receive a Form 1099-INT in the mail if the interest you received is $10 or more, which you use to report the income.
How the IRS calculates and pays refund interest
The IRS begins counting interest on day 46 after your return was received or filed, whichever date is later. If you filed on April 1 and the IRS received it on April 2, the clock starts on April 2. Interest accrues daily at the rate set for that quarter until the IRS issues your refund.
The interest rate is not fixed. Congress sets it by statute, and it changes every three months based on the federal short-term rate. The rate for the first quarter of 2024 was 8 percent; rates have varied from as low as 3 percent in recent years to as high as 10 percent. The IRS publishes the current rate on its website and updates it quarterly.
The IRS adds the interest directly to your refund. If you are owed $2,000 and the IRS owes you $50 in interest, you receive $2,050 total — either by check or direct deposit, depending on how you requested the refund. You do not receive the interest separately.
Reporting refund interest on your tax return
If the interest you received is $10 or more, the IRS will mail you a Form 1099-INT (Interest Income) by January 31 of the following year. This form shows the amount of interest in Box 1. You use this form to report the income on your tax return.
You report the interest on Schedule 1 (Form 1040), line 8b, under "Interest." If you use tax software, you enter the amount from Box 1 of the 1099-INT, and the software places it in the correct location. If you file by hand, you add the interest to any other interest income you received that year and enter the total on line 8b.
If the interest is less than $10, the IRS does not send a 1099-INT, but you still owe tax on it. You report it the same way — on Schedule 1, line 8b — using your own records of what you received.
Whether refund interest affects your tax bracket or other benefits
Refund interest is ordinary income. It counts toward your total income for the year and can affect your tax bracket, your standard deduction if you are a dependent, and your may be able to access for certain tax credits or deductions that have income limits.
For example, if you are close to the income threshold for the Earned Income Tax Credit (EITC), refund interest could push you over the limit and reduce or eliminate the credit. Similarly, if you are a dependent claimed on someone else's return, refund interest counts toward the gross income test that determines whether you can still be claimed as a dependent.
In most cases, the amount of interest is small enough that it does not change your tax situation. But if you received a large refund with significant interest, or if you are near an income threshold, check your numbers before filing.
When refund interest is most likely to occur
Refund interest happens when the IRS takes longer than 45 days to process your return. This occurs most often when you file on paper instead of electronically — paper returns take weeks longer to scan and process. It also happens when your return is selected for examination or when there are errors that require correction.
If you file electronically and your return is straightforward with no issues, you almost never wait 45 days. Most electronic returns are processed within two to three weeks. But if you file late in the tax season, if your return is complex, or if the IRS needs to verify information, delays are common.
Amended returns (Form 1040-X) can also trigger interest if the IRS takes more than 45 days to process them. The 45-day clock starts over when you file the amended return, not from your original filing date.
What to do if you do not receive a 1099-INT but think you should have
If you received refund interest but did not get a 1099-INT by the end of January, first check your mail carefully — it may arrive late. The IRS is required to send it by January 31, but delays happen.
If you are certain you received interest and no form arrives by mid-February, contact the IRS at 1-800-829-1040 or use the IRS website to request a copy. Have your refund check or deposit record ready so you can tell them the amount you received.
You can also look up your refund status on the IRS website using "Where's My Refund?" — this tool shows the date your refund was issued and any interest paid. Print or screenshot this information for your records.
Frequently Asked Questions
Can I deduct the tax I owe on refund interest?
No. Refund interest is ordinary income, not a deductible expense. You cannot reduce your taxable income by the amount of tax you owe on the interest. You simply report the interest as income and pay tax on it at your regular rate.
What if the IRS made an error and paid me interest I should not have received?
Contact the IRS and explain the error. If they agree the interest was paid in error, they will issue a corrected 1099-INT or no form at all. Do not report interest on your tax return if you have proof the IRS agreed it was paid by mistake.
Does refund interest count as earned income for Social Security or Medicare purposes?
No. Refund interest is unearned income and does not count toward Social Security earnings limits or affect your Medicare premiums based on income. It does count toward your total modified adjusted gross income (MAGI) for Medicare premium calculations, which is different.
If I owe taxes for the year, can the IRS use my refund interest to pay what I owe?
The IRS applies your refund to any taxes, penalties, or debts you owe before sending you the remainder. Interest on the refund is included in this process — the IRS adds it to your refund and then applies the total to what you owe. You only receive the interest if there is money left over after all debts are paid.