Bill of the Month — May 2023: Cutting Paperwork for Taxpayers Act

The Taxpayers Protection Alliance’s (TPA) Bill of the Month for May 2023 is the Cutting Paperwork for Taxpayers Act, introduced by Reps. Abigail Spanberger (D-Va.) and Young Kim (R-Calif.). This legislation would make interest accumulated on delayed tax refunds tax-exempt.

Background:

As of May 13, 2023, the Internal Revenue Service (IRS) reported 4.2 million unprocessed individual tax returns. While this is significantly down from the 23.5 million unprocessed returns in 2021, the agency is still struggling to fulfill its critical functions.

When the IRS fails to process a tax refund within 45 days, the refund begins accumulating interest. In January 2022, the interest rate on delayed returns was 3 percent; by the end of 2022 it doubled to 6 percent, and in January 2023, it rose to 7 percent. This rate is higher than savings accounts and Series I bonds, however, once it exceeds $10, it becomes taxable, and the agency issues the filer a separate 1099-INT form.

This can be a headache for unaware taxpayers, as the penalty for filing your federal taxes late is 5 percent per month, with a maximum of 25 percent, and a late payment fee of 0.5 percent.

Cutting Paperwork for Taxpayers Act:

This critical legislation would make interest generated on delayed tax refunds tax-exempt. The burden of the IRS failing to expeditiously process Americans’ tax returns should not fall on filers, who should rightly be rewarded for the agency’s delay.

It is for these reasons, among others, that TPA is proud to make the Cutting Paperwork for Taxpayers Act, introduced by Reps. Abigail Spanberger and Young Kim, its bill of the month for May 2023.