Why doesn't the IRS pay interest on W-4 over-withholding? Did they used to? When did they stop?

Question

Why doesn't the IRS pay interest on W-4 over-withholding? Did they used to? When did they stop?

Answer 1

1. They don't pay interest because they don't have to - people willingly over-withhold so the IRS gets plenty of money interest free.

2. No, they did not used to.

3. They never did so they never stopped.

What you may be thinking of is getting a refund from a return filed a couple years late or filing an amendment to a prior year return.  Those frequently come with interest included.

Answer 2

Tax law does not now or ever provide for payment of interest on over-withholding and IRS encourages adjusting withholding to minimize refunds.  Interest is paid on refunds due from amended returns or claims held over 45 days.

Answer 3

You can increase your deductions on file and reduce the withholding to more closely match your actual tax due. That is your responsibility, not theirs, so that is why they are not liable for interest.  

Answer 4

You determine your withholding not the IRS. You advise your company what to take. That is not the IRS's problem. You can change your elections at any time.

Answer 5

No, they never did.  The law is set up that income tax is a pay as you go system, so you are required to pay throughout the year.

Overwithholding is YOUR choice - if too much is being withheld, adjust your W-4 so you come close to breaking even.

Answer 6

Overwithholding can only be determined at the time you file your tax return.  If you are due a refund, and file in a timely manner, the IRS will issue it within forty-five days from the date your return was filed.  If the IRS takes longer than that, you will receive interest on the refund for the period between 45 days after your return is filed and the date of your refund.

If you file late you may also receive interest, sorry I don't know the date on that but it would be consistent to figure interest from 45 days after the due date of the return.