Is refund interest taxable? Yes: where to report IRS refund interest and when you get a 1099-INT

Is refund interest taxable income?

Refund interest is taxable income. IRS Publication 550, Investment Income and Expenses, states plainly that interest received on tax refunds is taxable, and the same applies to interest paid by a state or local tax agency on a late state refund. The refund interest paid to you is treated like interest from a savings account.

The refund is a different matter. A federal income tax refund is simply your own overpaid tax coming back, so it is not income. That leaves many people with a refund deposit that is part non-taxable (the refund) and part taxable (the interest), with no breakdown on the bank statement. A state refund follows its own rule, covered in whether a state refund is taxable on your federal return.

When do you get a 1099-INT for IRS refund interest?

You should receive a Form 1099-INT, Interest Income, when refund interest paid to you in a calendar year totals $10 or more. IRS Tax Topic 403 notes that federal, state and local tax agencies may report refund interest on Form 1099-INT, and that payers of $10 or more in interest should send you Copy B.

Watch the mail in January and February. The form covers interest paid during the prior calendar year, so a refund with interest deposited in July 2026 shows up on a 1099-INT for 2026, sent in early 2027. If your address changed, update it with the IRS so the form reaches you.

Refund interest paid under $10

Below $10 you may not get a form, but the interest is still taxable. Publication 550 says you must report all interest income even if you do not receive a Form 1099-INT. Your account transcript shows the exact amount on the transaction code 776 line; see how to read an IRS transcript.

Where do you report refund interest on your return?

Report refund interest as taxable interest on Form 1040 or 1040-SR, line 2b, together with bank and other interest. If your total taxable interest and ordinary dividends for the year are over $1,500, you also list each payer on Schedule B (Form 1040), Interest and Ordinary Dividends, with the IRS as a separate line.

Which tax year the interest belongs to

Most people use the cash method, so refund interest belongs to the year it is paid, not the tax year of the refund. Interest added in 2026 to a delayed 2025 refund goes on your 2026 return, filed during the 2027 season. You do not need to amend the 2025 return to add it.

How much tax will you pay on refund interest paid to you?

Refund interest is taxed at your ordinary income tax rate, the same as wages or bank interest. After a delay of a few months, the tax is usually a few dollars. Say a delayed refund came with $38 of interest and your top federal bracket is 12%: the extra federal tax is about $4.56.

Larger amounts come from long delays, amended returns or big overpayments. At the fourth-quarter 2026 rate of 7% a year, compounded daily, a $5,000 refund held a full year past the due date earns about $362.50 of interest. At a 22% top rate that adds roughly $80 of federal tax. See the current refund interest rate for other quarters.

What if you forget to report refund interest?

If the IRS issued a 1099-INT and the interest is missing from your return, the IRS can spot the gap by comparing the form with your return. That can lead to a CP2000 notice, which the IRS sends when income reported by third parties does not match your return. The notice proposes changes to your tax and gives a date to reply.

1. Check the 1099-INT amount against the TC 776 line on your transcript.
2. If the notice is right, sign and return the response by the date listed, or pay online.
3. If the interest was already included on line 2b with your bank interest, reply with a short explanation showing the total.
4. If you catch the omission yourself before a notice, file Form 1040-X to add it; see the amended return guide.

Is state refund interest taxable too?

Yes. Interest a state or local tax agency pays on a delayed state refund is taxable on your federal return in the year you receive it, and the state may send a Form 1099-INT under the same $10 threshold. Whether your state taxes interest on its own refund, or on federal refund interest, depends on that state's rules, so check the state return instructions.

Keep the state interest separate from the state refund itself. The refund may or may not be taxable depending on whether you itemized; the interest is taxable either way. How the money reached you does not change the tax: interest is taxable whether the refund came by direct deposit or by one of the paper checks still issued under the exceptions in the paper check phase-out.