If you were entitled to a 2019 tax refund, you may be in store for some good news: individual federal income tax refunds issued after April 15 will be paid with interest.
The Internal Revenue Service (IRS) has announced that individuals who file their 2019 tax returns before the July 15 deadline will receive interest for the period from April 15 until the refund issue date. That’s true even though the tax-filing deadline has been extended to July 15.
You may have to re-read that paragraph because the whole thing is definitely a bit confusing.
Ordinarily, a taxpayer who timely files a return on or before the due date wouldn’t get paid interest on a refund unless the IRS waited more than 45 days from the due date or the date you file your return – whichever comes later – to issue a refund. But, this year has been anything but ordinary. So, for 2020, the IRS opted to refer to the original due date (April 15) and not the revised filing date (July 15) for all taxpayers who timely file.
Here’s a quick example. Let’s say you filed on April 1, and the IRS didn’t issue your refund until April 20. Usually, that means that you’re not entitled to interest. But for 2020, you are, but only for the portion beginning on April 15 (so, April 15 through April 20).
But what if you – like many other taxpayers – filed closer to the deadline? Let’s say you filed on July 1, and the IRS issued your refund on July 20. You’ll still receive interest for the period beginning April 15 (so, April 15 through July 20).
If that sounds like you, but you didn’t receive your interest payment yet, don’t call the IRS. Interest payments may be received separately from your refund. And yes, any interest earned is taxable.
You won’t strike it rich, but it’s definitely better than nothing. The interest rate for the second quarter, ending on June 30, 2020, is 5% per year, compounded daily. The interest rate for the third quarter, ending September 30, 2020, is 3% per year, compounded daily.
You can read the full IRS statement here.