Sometimes the IRS refunds taxpayers when they have paid too much tax, often due to a calculation error. Starting this year, the new law requires the tax administration to also pay interest to taxpayers.
The 40 million taxpayers who have to file a tax return each year are divided into three categories: those who don’t pay taxes (often because they don’t earn enough), those who pay what they owe, and finally … those who pay too much. Indeed, tax authorities make mistakes every year, so many taxpayers are overtaxed. Clearly, the IRS is asking them for income tax that does not correspond to what they should actually pay.
LError is human, the Directorate General for Public Finance (DGFIP) is no exception to the rule. Tax authorities may forget to take into account a tax relief, reduction or tax credit. Therefore, the income tax calculation is incorrect and the taxpayer pays too high an amount. Sometimes the IRS realizes this overpayment and prepares an automatic refund. However, in several cases, taxpayers are the ones who contact the tax administration after receiving a tax notice, and the latter shows a strangely large amount.
Until now, when the tax authorities simply reimbursed taxpayers after a mistake. From now on, victims of an administrative offense will receive default interest in addition to the owed amount. Previously, DGFIP was not obliged to systematically pay these interests. In order to receive them, taxpayers had to initiate civil proceedings against the administration, in accordance with Article L208. of the tax regulation. Default interest corresponds to a rate of 0.20% per month of delay, calculated on the amount of the returned tax, from the day of the initial payment.
To illustrate this mechanism, let’s take the example of a taxpayer who overpaid 1,000 euros in taxes in September 2023 and to whom the tax administration returns the money in June 2024. In this case, in addition to a refund of 1,000 euros, he will also receive 18 euros in default interest (1,000 euros x 0.2% x 9 months).
However, from January 1, 2024, with the application of the Finance Act 2024, the payment of default interest has become automatic when the tax administration corrects the error. Article 126 of the Law on Finance actually rounded off the book of tax procedures, which made the payment of default interest mandatory, without the taxpayer having to initiate litigation.
It is important to note that this measure does not apply to errors related to withholding tax, nor to refunds of tax credits or excess withholding tax, as the latter do not result from an error by the tax administration. In addition, if the error can be attributed to the taxpayer, such as an incorrectly completed tax return, no default interest will be paid.