Spanberger, Davis Reintroduce Bipartisan Legislation to Fix Flaw in Tax Code, Deliver Relief to Americans Still Waiting on Long Overdue Tax Refunds Amid COVID-19 Delays

The FAIR Act Would Make the Interest Received on Delayed Tax Refunds Non-Taxable Income

WASHINGTON, D.C. – U.S. Representatives Abigail Spanberger (D-VA-07) and Rodney Davis (R-IL-13) today reintroduced a bipartisan bill to fix a flaw in the U.S. tax code that unfairly penalizes American taxpayers who are still waiting on their tax refunds.

Due to delays at the Internal Revenue Service (IRS) caused by the COVID-19 pandemic, millions of Americans are receiving delayed refunds with accumulated interest. Under current regulations, when the IRS is delayed by more than 45 days in providing a tax refund, interest begins to accumulate on these refunds. However, any interest received due to a delayed refund is subject to taxes — unlike the refund itself. Accord to a recent CBS News report, an estimated 29 million tax returns are currently being held by the IRS for manual processing — and this backlog is contributing to significant delays.

The bipartisan bill — the Freeing Americans from Interest on Reimbursements (FAIR) Act— would designate the interest that accumulates on a late tax refund as non-taxable income. This change would spare the nearly 14 million Americans who are projected to receive interest on their refunds this year the cost and hassle of having to report their interest as additional income on a separate 1099-INT. Spanberger and Davis first introduced a version of the legislation in September 2020.

“Working families in Central Virginia shouldn’t be forced to pay extra taxes, simply because of enormous backlogs at the IRS that were caused by no fault of their own. This unnecessary burden exacerbates hardships facing Virginians in a moment already marked by financial uncertainty — and we can take commonsense steps to fix this issue,” said Spanberger. “This bipartisan legislation removes an undue hurdle for American taxpayers by making clear that interest on these delayed refunds should be viewed as non-taxable income. I’d like to thank Congressman Davis for his continued partnership on this issue, and I’ll keep working to give our area’s families additional peace of mind and greater ability to save for their futures.”

“The COVID-19 pandemic has created delays in processing tax refunds to families across the country, which has resulted in the IRS sending interest payments on delayed refunds that often result in taxpayers unnecessarily owing additional taxes,” said Davis. “These interest payments force taxpayers to file additional tax forms that sometimes prove to be complicated and expensive, especially for as little as $8 in interest. I am proud to again introduce the bipartisan FAIR Act with Rep. Spanberger to ensure that taxpayers don’t have to pay taxes on interest payments, particularly those negligible in dollar amount, that they have received through no fault or investment of their own.”

According to August 2020 data from AARP,13.9 million U.S. taxpayers will receive a check averaging $18 on the interest on their refunds.

Click here to read the full bill text.

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