Why doesn't the government pay interest on tax withholding returned via a refund?

When the US government pays you your tax refund, it doesn’t include any sort of interest payment for what is essentially a loan to the government. Why doesn’t the government pay interest?

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One Response to “Why doesn't the government pay interest on tax withholding returned via a refund?”

    • Because it is up to you to set the correct amount of withholding so it closely matches what you are supposed to pay in taxes. And if you screw up? Well, too bad for you.
    • Most people don’t have a good understanding of interest and the time value of money, so it would just add more confusion and misconceptions. (“Wow, I paid the government some taxes and now they’re giving me back even more money”)
    • It is not remotely the government’s job to make sure you get the most money. On the contrary, they make tons of non-obvious tax traps and it’s up to you to figure out how to optimally navigate them. They are more than happy to find ways to get money from people unwittingly.

    Conversely, if you under-withhold and owe the government a small amount of taxes (as long as it’s not enough to trigger the penalty), you also don’t need to pay the government interest either.