Sponsors (2)
Allows taxpayers — including eligible small businesses — to keep interest on tax overpayments tax-free, boosting cash flow for recipients while modestly lowering federal revenue and adding some compliance complexity.
Taxpayers — including eligible small businesses — can keep interest on federal tax overpayments tax-free, increasing after-tax cash and improving refund-related cash flow.
The exclusion of interest on tax overpayments reduces federal tax receipts, creating a modest budgetary cost that could increase pressure on federal funding or deficits.
Individuals and businesses may face added complexity and compliance burden determining eligibility for the exclusion and applying it correctly.
Based on analysis of 2 sections of legislative text.
Excludes interest on federal tax overpayments from gross income for individuals and eligible small businesses.
Excludes interest paid on federal tax overpayments from gross income for individual taxpayers and certain small businesses, so that interest the IRS pays when it refunds overpaid taxes won’t be taxed. The change is added to the Internal Revenue Code as a new section and applies to taxable years beginning after enactment. The amendment is narrowly focused: it creates a targeted tax exclusion (not an appropriation or new program) and updates the Code’s table of contents to insert the new provision.
Official title: To amend the Internal Revenue Code of 1986 to exclude from gross income any interest paid on an overpayment of tax in the case of an individual or small business.
Introduced July 29, 2025 by Eugene Simon Vindman · Last progress July 29, 2025