Keep an eye out for an extra check from the IRS this summer.
Any individual tax refunds that were issued after April 15 will be eligible to receive interest, the Internal Revenue Service announced on June 24. And taxpayers are entitled to that interest even though the tax-filing deadline was extended to July 15.
Taxpayers who file by that July 15 deadline and are due a refund will accrue interest that "will generally be paid from April 15, 2020, until the date of the refund," the IRS said in a statement. "Interest payments may be received separately from the refund."
By law, the IRS must issue interest payments to Americans who receive their refund checks late, or 45 days after the typical mid-April filing date. However, the tax code doesn't factor in federal government filing extensions — and as a result, the typical 45-day rule isn't in effect this year because of the coronavirus-related shutdowns.
That means that even if you haven't filed your taxes yet, you may be eligible for an interest check from the federal government. Here's what you need to know.
This year, the IRS has been slower to process tax returns, as the coronavirus pandemic has forced many IRS employees to stay home or work from home.
As of June 12, the IRS said it had received 136.5 million individual income tax returns, but the government agency has only processed 124.6 million of those returns. That's 12% less than the number of returns filed in a comparable period last year.
"It's hard to know how many Americans will receive an interest check," says Lisa Greene-Lewis, a certified public accountant and tax expert at TurboTax. "This year, many Americans who don't normally file tax returns, had to file in order to receive economic impact payments. Since the [Internal Revenue Service's] statistics include all of these additional people, it's hard to say how many refunds the IRS still owes."
Based on that IRS announcement, all individual tax refunds began accruing interest starting on April 15. If you received your refund after that date, or if you haven't received a refund at all yet, you're likely entitled to government interest on your refund check.
And any further IRS processing delays could result in larger interest payments for some taxpayers. As of now, the government extended its tax filing deadline until July 15, but officials are weighing a further extension until September 15, Treasury Secretary Steven Mnuchin said on June 23.
Video by Stephen Parkhurst
By law, the interest rate on both overpayment and underpayment of tax is adjusted quarterly, according to the IRS. For the second quarter, which ends on June 30, 2020, the interest rate is 5% per year, compounded daily. For the third quarter, which ends on September 30, 2020, the interest rate will be 3% per year, compounded daily.
To calculate how much interest you could be due, let's use the average refund amount so far for 2020, which the IRS says is $2,767. If that refund payment is late by 30 days, it would accrue interest worth about $12.
That's more interest than you'd earn parking your money in a savings account. As of June, even several of the online, high-yield savings accounts only pay interest rates of as much as 1.35%, according to data from Bankrate.
That doesn't mean you should delay filing to earn interest, Greene-Lewis says: "I would never suggest delaying filing your taxes. People are tight on cash right now and need their refunds, so don't hold off on filing to try to get additional interest."
Taxpayers may get their interest payments separately from their refunds, so be careful not to throw it away if it comes in the form of a check.
Last month, the IRS sent out economic impact payments, also known as stimulus checks, in the form of prepaid debit cards to approximately 4 million Americans. This caught off guard some Americans who were expecting paper checks or direct deposits. As a result, some debit card recipients threw their debit cards away, thinking they were junk mail or part of a phishing scheme.
It's also important to note that any interest payment you receive from the IRS would be considered taxable income on your 2020 returns, according to the IRS.
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