US Internal Revenue Service has millions of unfiled tax returns, pays billions in interest to those waiting

When many investments are not earning much return, Americans can earn guaranteed 4% interest. The caveat is that your tax refund must be held by the IRS.

Individual rates of 4% went into effect in April, up a percentage point from the previous quarter. The rate for large company refunds has increased from 0.5 percent to 1.5 percent. The Internal Revenue Service typically takes 45 days to process a tax return and issue a refund. Following that, interest begins to accrue in amounts tied to federal short-term interest rates, which are modified every quarter.

These interest payments come at a price for the general public: According to a Government Accountability Office analysis, the IRS paid $3.3 billion in interest to tax filers in the fiscal year 2021, more than treble what it paid in 2015. According to the Treasury Department, refund interest payments through March are down 11% for the fiscal year that began in October but are still significantly above 2019 levels.


The IRS has been processing tax returns at a slower pace than usual. Officials in the administration claim that this is the outcome of years of Republican-led budget cuts. Republicans claim that the agency has failed to prioritise taxpayer service. Recent years have been extremely challenging. A backlog developed in fiscal 2019 as a result of the government shutdown. When the coronavirus outbreak hit in 2020, the IRS slowed down again, and it's still months behind schedule in processing paper returns.

Nina Olson, the IRS's previous in-house taxpayer advocate, believes the government should invest in technology that will allow it to automate the processing of returns created with the tax program but submitted on paper. Individual employees copy them by hand and enter them into IRS computers.