Looking for your interest? The Internal Revenue Service (IRS) will begin sending interest payments to individual taxpayers who timely filed their 2019 federal income tax returns and are due refunds. The IRS pegs that number at about 13.9 million taxpayers.
In June, the IRS announced that if you were entitled to a 2019 tax refund, individual federal income tax refunds issued after April 15 would be paid with interest.
Now, the IRS says that the interest payments, which average about $18, will be made to individual taxpayers who filed a 2019 return by the July 15 deadline and either received a refund in the past three months or will receive a refund. Most interest payments will be issued separately from tax refunds.
In most cases, taxpayers who received their tax refund by direct deposit will have their interest payment direct deposited in the same account. About 12 million of these payments will be direct deposited.
If you don’t receive your interest by direct deposit, you will receive a check. The checks will be notated “INT Amount,” which will identify it as a refund interest payment.
And as I noted in June, these interest payments are taxable. It’s just like any other interest you receive: you must report it on your 2020 federal income tax return that you’ll file in 2021. To help you sort it out, in January 2021, the IRS will send you Form 1099-INT if you receive interest totaling at least $10.
But don’t get too comfortable since this isn’t the norm. Usually, the IRS isn’t required to add interest to refunds on timely-filed refund claims unless they are issued more than 45 days after the return due date. But the deadline was pushed off this year due to the COVID pandemic. Specifically, on March 13, 2020, the President of the United States issued an emergency declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. In other words, the entire country has been declared a disaster area. Where a disaster-related postponement exists, the IRS is required to pay interest as of the original April 15 filing deadline, as long as an individual files a 2019 federal income tax return by the new deadline (in this case, July 15, 2020).
The interest provision only applies to individual income tax filers (sorry, businesses).
So how much is coming your way? Interest is paid at the legally prescribed rate that is adjusted quarterly. The rate for the second quarter ending June 30 was 5%, compounded daily. Effective July 1, the rate for the third quarter dropped to 3%, compounded daily. If your payment period spans quarters, a blended rate applies, consisting of the number of days falling in each calendar quarter. It’s not awesome, but better than what many banks are paying.