Delayed State Tax Refunds: Are You Owed Interest?

Tax season can be a challenging time for many individuals. Waiting for your federal and state tax refunds can feel like a never-ending process, especially when you encounter unexpected delays. In this blog post, we'll discuss a common issue faced by taxpayers when a state erroneously assesses them for taxes, causing a reduction in their federal refund. We'll explore the question of whether the state government owes you interest for the delay in returning your overpaid tax funds.

The Background

Let's dive into the scenario: Last year, you found yourself in a situation where the state of Ohio was erroneously classifying you as a resident for tax purposes, despite living and working in New York. This misclassification led to an incorrect tax assessment by Ohio, which subsequently reduced your federal refund. Frustrated and determined to set things right, you decided to challenge the assessment. After a diligent effort and some time, you managed to successfully contest the assessment and the Ohio Tax Department approved the correction.

However, your quest for a full resolution didn't end there. The next step in the process involves receiving the money you're rightfully owed. The responsibility for payment falls on the shoulders of the Attorney General's office. Unfortunately, the projected timeline for you to receive your refund is now sometime in 2024 – a substantial delay.

The Burning Question: Interest Owed for the Delay?

Now, let's address the burning question: Does the state of Ohio owe you interest for the delay in refunding the money that you rightfully overpaid? To answer this question, we need to consider some key factors.

1. State Laws and Regulations: The first thing to look into is your state's laws and regulations regarding the payment of tax refunds. States have varying policies on this matter. Some may specify that they owe interest on delayed refunds, while others may not.
2. Statutory Requirements: In some states, there may be statutory requirements that dictate whether interest should be paid on delayed refunds. These statutes can provide clarity on the circumstances under which interest is owed and the applicable interest rates.
3. Application of Interest: If your state's laws or regulations stipulate that interest should be paid on delayed tax refunds, it's important to understand how the interest is calculated and when it begins to accrue. In some cases, interest may start accruing from the date you filed your tax return, while in others, it may begin from a specific point in time, such as the date of approval by the tax department.
4. Communication with the State: To gain clarity on the matter, it's advisable to communicate with the state's tax department and the Attorney General's office. They should be able to provide you with information on their policies regarding interest on delayed refunds.
5. Consulting Legal Advice: If you encounter significant delays and are unsure about your rights in the matter, it may be wise to seek legal counsel. An attorney experienced in tax law can provide guidance on the best course of action and whether you have a valid claim for interest.

Conclusion

In situations like the one you described, where a state tax assessment error results in a reduced federal refund, it's crucial to understand your rights and the potential entitlement to interest for delayed refunds. The specific outcome depends on a variety of factors, including your state's laws and regulations, statutory requirements, and communication with the relevant government offices.

To determine whether the state of Ohio owes you interest for the delay in your tax refund, you should start by researching your state's policies and, if necessary, consult with a legal professional. Your hard-earned money shouldn't be kept from you any longer than necessary, and understanding your rights is the first step towards ensuring a fair resolution to this taxing situation.