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Interest on Credits and Refunds and on Tax Due



Interest Owed

Past-due taxes are charged interest beginning sixty-one days after the due date.

For most taxes due on or after Jan. 1, 2000, this interest rate varies annually, set at one percent over the prime rate as published in the Wall Street Journal on the first business day of the year.

Calculating Interest owed

You can calculate the interest you owe by multiplying the interest rate times the tax due times the number of days interest accrues, then dividing that total by the number of days in a year (365 days or 366 for leap years). For example, if you owe $1000 in taxes at a rate of 4.25 percent (.0425) for 150 days and divide that number by 365 (days in a year), the interest owed would be $17.47.

Year Annual Rate
Prime +1
2014 4.25 percent (.0425)
2013 4.25 percent (.0425)
2012 4.25 percent (.0425)
2011 4.25 percent (.0425)
2010 4.25 percent (.0425)
2009 4.25 percent (.0425)
2008 8.25 percent (.0825)
2007 9.25 percent (.0925)
2006 8.25 percent (.0825)
2005 6.25 percent (.0625)
2004 5.00 percent (.0500)
2003 5.25 percent (.0525)
2002 5.75 percent (.0575)
2001 10.50 percent (.1050)
2000 9.50 percent (.0950)
For taxes due on or before Dec. 31, 1999, interest was assessed at 12 percent per year

Interest Earned

As a result of legislation (SB 1570) passed in the 79th Regular Legislative Session, refund claims filed on or after Sept. 1, 2005, accrue credit interest at either Treasury Pool rate or Prime +1, whichever is less.

The credit interest will vary annually until the credit is refunded or transferred to a liability. The credit interest for each year is determined by that year’s Treasury Pool rate or Prime +1, whichever is less. For example, if interest accrues from Dec. 20, 2013, to Jan. 20, 2014, the interest rate from Dec. 20, 2013, to Dec. 31, 2013, will be 0.465 percent (.00465) and the interest rate from Jan. 1, 2014, to Jan. 20, 2014, will be 0.385 percent (.00385).

Calculating Interest Earned

You can calculate the interest earned by multiplying the interest rate times the tax due times the number of days interest accrues, then dividing that total by the number of days in a year (365 days or 366 for leap years). For example, if you were to earn interest on $1000 at a rate of 0.385 percent (.00385) for 150 days and divide that number by 365 (days in a year), interest earned would be $1.58.

Year Annual Rate
Prime +1
Annual Rate
Treasury Pool
2014 4.25 percent (.0425) 0.385 percent (.00385)
2013 4.25 percent (.0425) 0.465 percent (.00465)
2012 4.25 percent (.0425) 0.692 percent (.00692)
2011 4.25 percent (.0425) 0.921 percent (.00921)
2010 4.25 percent (.0425) 1.574 percent (.01574)
2009 4.25 percent (.0425) 2.511 percent (.02511)
2008 8.25 percent (.0825) 4.764 percent (.04764)
2007 9.25 percent (.0925) 5.066 percent (.05066)
2006 8.25 percent (.0825) 4.068 percent (.04068)
2005 6.25 percent (.0625) 2.187 percent (.02187)
2004 5.00 percent (.0500) 1.517 percent (.01517)
2003 5.25 percent (.0525) 2.107 percent (.02107)
2002 5.75 percent (.0575) 3.465 percent (.03465)
2001 10.50 percent (.1050) 6.140 percent (.06140)
2000 9.50 percent (.0950) 5.619 percent (.05619)

Credit Interest Summary

Credit Interest

Since Jan. 1, 2000, taxpayers have been able to receive interest on refunds and transfers of taxes paid in error. The interest begins to accrue 60 days after the date of the payment or the due date of the tax report, whichever is later. Credit interest does not accrue for report periods prior to Jan. 1, 2000, or for Title 6, Property Code.

Under the old law, the interest rate was 1 percent over the prime rate published in the Wall Street Journal on the first business day of each calendar year. As of Sept. 1, 2005, the credit interest rate for tax refunds is the lesser of:

  • the annual rate earned on deposits in the state treasury during December of the previous calendar year; or
  • one percent over the prime interest rate published in the Wall Street Journal on the first business day of the year.

The interest rate is determined by the date of the refund claim. The claim can be an amended tax return, request for a transfer of the credit to another period, or request for a refund. A request with a postmark date prior to Sept. 1, 2005, accrues interest at the old rate, prime plus 1 percent. A request that occurs on or after Sept. 1, 2005, accrues interest at the lesser of the two rates described above.

Example of Credit Created by Amended Reports

For example, a tax return is due on May 20, 2005, and the report is filed and the tax paid on time. An amended return is filed on Aug. 20, 2005, creating a credit of $1,000. The credit interest would begin on the 61st day after May 20, 2005, or July 20, 2005. The interest rate paid on the credit would be prime plus 1 percent. If the amended return were filed on or after Sept. 1, 2005, however, the interest rate would be determined by which rate is lower - the Treasury Pool Rate or prime interest rate plus 1.

If you file multiple amended reports for a period, the interest rate is determined by the postmark date of the last one. For example, a tax return and payment are filed on time on June 20, 2005. An amended return is filed on Aug. 12, 2005, creating a credit of $3,000. Another amended return is filed on Sept. 1, 2005, creating an additional credit of $4,000, for a total credit of $7,000 for the filing period. The credit interest will start accruing on the 61st day after June 20, 2005, or Aug. 20, 2005, but the interest rate on the entire $7,000 credit would accrue at the lesser of the two rates since the second amended return was filed Sept. 1.

Credits in Audits

A credit that is scheduled in an audit will be refunded once the audit is completed using the interest rate in effect on the entrance conference date of the audit. If the entrance conference is prior to Sept. 1, 2005, the interest rate accrues at the prime plus one rate. If the entrance conference is on or after Sept. 1, 2005, the interest accrues at the lesser of the two rates.

Refund Claims Verified by Audit

A refund claim with a postmark date prior to Sept. 1, 2005 accrues interest at prime plus 1 percent. If the postmark date is on or after Sept. 1, 2005, it will accrue interest at the lesser of the two rates.

Transfers

Each transfer of a credit is treated as a new transaction. If a later transfer has a postmark date on or after Sept. 1, 2005, then the interest rate will accrue at the applicable rate. For example, an amended return for January 2005 is filed on April 1, 2005, creating a $5,000 credit. A transfer request moves the $5,000 credit to the May 2005 filing period. Credit interest will accrue at the old rate of prime plus 1 percent. A second transfer is filed on Oct. 1, 2005, moving $2,000 to the July 2005 filing period. For this transfer, credit interest will accrue at the lesser of the two rates. Each transfer of a credit forward is subject to credit interest. Transfers of credit to previous periods are not subject to credit interest.

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