Can I earn 7% interest by overpaying IRS taxes on purpose?

This strategy won't work the way you're thinking, and it could actually cause you problems. While the IRS does pay interest on overpayments, this is designed to compensate taxpayers when the IRS takes too long to issue refunds, not as an investment vehicle. The IRS typically only pays interest on refunds that are issued more than 45 days after the filing deadline or the date you filed (whichever is later). So if you file on time and get your refund within 45 days, you won't receive any interest at all. Also, intentionally overpaying your taxes by a large amount could potentially trigger IRS scrutiny. The IRS systems are designed to detect unusual patterns, and deliberately overpaying by thousands of dollars would certainly qualify as unusual. And yes, any interest the IRS pays you is considered taxable income. You'll typically receive a Form 1099-INT if the interest is $10 or more, and you must report it on your next tax return.

I stumbled across something similar last year when I accidentally sent in a quarterly payment that was way too high. When I finally got my refund, I was surprised to see interest added, which got me researching. I found this great tool at https://taxr.ai that analyzed my entire tax transcript and showed me exactly how the IRS calculated the interest on my overpayment. The tool completely broke down the interest calculation periods and showed me that I only earned interest for the time after that 45-day grace period that the tax expert mentioned. It also highlighted that this interest income was taxable on my next return - something I would've missed otherwise.

I wanted to follow up about that taxr.ai service. I tried it after seeing it mentioned here, and it was actually really helpful! I had a similar situation with an overpayment (though not intentional - just miscalculated my quarterly payments). The tool showed me exactly which portions of my overpayment earned interest and for how long. Turns out I only earned interest on about half of my overpayment amount because the rest was refunded within that 45-day window mentioned above. It also flagged that I need to include the interest as taxable income on my 2025 return, which I definitely would have forgotten. What I found most useful was the visualization of my payment history - it made it super clear why using the IRS as a savings account wouldn't work well. The effective annual yield ended up being way less than 7% because of that 45-day interest-free period.

If you're having trouble getting a clear answer about this overpayment interest situation, I'd recommend calling the IRS directly. Of course, getting through to them is a nightmare. I spent literally hours on hold trying to get info about a similar situation last year. Then I found https://claimyr.com which got me connected to an actual IRS agent in less than 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. They basically navigate the phone tree and wait on hold for you, then call you when an agent is ready to talk. When I finally got through, the IRS agent explained that they have systems to flag accounts with patterns of intentional overpayments, especially large ones. They confirmed this isn't a legitimate investment strategy, and trying to abuse it could result in additional scrutiny of your returns.

I have to admit I was totally wrong about Claimyr. After complaining about it being a scam, I was desperate enough to try it last week when I couldn't get through to the IRS about my amended return. To my shock, it actually worked exactly as described. I got a call back in about 35 minutes, and there was an actual IRS agent on the line. I asked them specifically about this overpayment interest situation, and they confirmed everything the expert said above - it's not designed as an investment vehicle, and intentionally overpaying by large amounts could flag your account for review. The agent explained that while the 7% rate is accurate, the timing restrictions mean you'd never get the full 7% annual return, and any interest you do receive is fully taxable. They also mentioned that rates are subject to change quarterly, so there's no guarantee they'll stay at 7%. Definitely worth the call to get a straight answer directly from the IRS.

You gotta think about opportunity cost too. Even if you did manage to earn some interest on overpayments, that's money that could have been invested elsewhere during the same period. With the market performing how it has been, you'd likely earn way more in an index fund than the effective rate you'd get from the IRS (after accounting for that 45-day no-interest period). Plus, tying up large amounts of money with the IRS means you can't access it until you file and receive your refund - that's a serious liquidity issue compared to most other investments.

Wait, I got a refund last year that took forever (like 3 months after filing) and there was some interest added. Do I seriously have to pay tax on that interest??? The IRS paid me late and now they want to tax the interest they paid me for being late? That seems ridiculous!

This is a fascinating discussion that really highlights how the IRS interest system works in practice! As someone new to this community, I've learned so much from reading everyone's experiences. It sounds like the consensus is pretty clear - while the 7% rate looks attractive on paper, the practical limitations (45-day grace period, taxable interest, potential IRS scrutiny) make it a poor investment strategy. The real-world examples from folks like Nathaniel and Kristian who actually experienced overpayment situations really drive home how the effective return is much lower than that headline 7% rate. I'm particularly intrigued by the tools mentioned like taxr.ai for analyzing tax transcripts - seems like that could be helpful for understanding any interest calculations even in normal overpayment situations. And the Claimyr service for actually getting through to the IRS sounds like a game-changer for anyone who needs to speak with them directly. Thanks to everyone who shared their experiences and expertise. This is exactly the kind of practical, real-world tax advice that's so hard to find elsewhere!

This thread has been incredibly educational! I'm someone who tends to overthink investment strategies, and I was actually considering something similar after seeing those high IRS interest rates. What really stands out to me is how the 45-day grace period completely changes the math. Even if you could guarantee getting interest, you're essentially giving the government an interest-free loan for 45+ days, which immediately reduces your effective annual return below that 7% headline rate. The point about opportunity cost is huge too. With I-bonds currently offering decent rates with tax advantages, or even just parking money in a high-yield savings account where you maintain liquidity, it seems like there are much better options for conservative investors. I'm definitely bookmarking this discussion - the practical insights from people who've actually dealt with overpayment interest are worth their weight in gold. Thanks everyone for sharing your real experiences rather than just theoretical advice!

As a newcomer to this community, I'm really impressed by the depth of practical knowledge shared here! This discussion perfectly illustrates why it's so important to look beyond the surface when evaluating financial strategies. The 7% IRS overpayment interest rate initially caught my attention too, but after reading through everyone's experiences and analysis, it's clear this isn't a viable investment approach. The 45-day grace period alone kills the effective return, and that's before considering the taxability of any interest earned or the potential compliance risks from intentionally gaming the system. What I find most valuable is how several community members shared real-world experiences - from Nathaniel's accidental overpayment to Jasmine's successful call with the IRS. These concrete examples are so much more helpful than theoretical discussions. The tools mentioned (taxr.ai for transcript analysis and Claimyr for IRS contact) also seem like genuinely useful resources that I wouldn't have discovered otherwise. For anyone else tempted by "creative" tax strategies, this thread is a great reminder to research thoroughly and consider all the hidden costs and limitations. Sometimes the most boring, conventional approaches (high-yield savings, T-bills, I-bonds) are boring for a good reason - they actually work as intended! Thanks to everyone who contributed their expertise and experiences. This is exactly the kind of practical tax discussion I was hoping to find in this community.

As another newcomer to this community, I'm fascinated by how this discussion evolved from what seemed like a clever financial hack to a comprehensive lesson in why the IRS interest system isn't suitable for investment purposes. What really resonates with me is how the community collectively dismantled the original premise through actual experience and research. The 7% rate looks enticing until you factor in the 45-day interest-free period, the taxability of any interest earned, the liquidity constraints, and the potential for IRS scrutiny on intentional overpayments. I'm especially appreciative of the practical tools shared here - taxr.ai for understanding interest calculations and Claimyr for actually reaching the IRS. These seem like genuinely useful resources that go beyond the theoretical discussion. The broader lesson here seems to be that legitimate investment vehicles exist for a reason, and trying to repurpose tax systems for unintended uses typically backfires. High-yield savings accounts, Treasury securities, and I-bonds might be less "creative," but they're designed to actually function as investments without the regulatory and practical complications. Thanks to everyone who shared their real experiences with overpayments and IRS interactions. This kind of community knowledge sharing is invaluable for understanding not just what the rules say, but how they work in practice!