IRS Decides to Make Interest Payments on Delayed Tax Refunds
You read that correctly, no it isn’t a typo. Last week, the IRS announced that if you’re still waiting on your federal tax refund, the government is going to tack on some interest in an effort to make up for your wait. For some, the interest could be quite noticeable.
The official statement from the IRS states that “interest on individual 2019 refunds reflected on returns filed by July 15, 2020 will generally be paid from April 15, 2020 until the date of the refund. Interest payments may be received separately from the refund. By law, the interest rate on both overpayment and underpayment of tax is adjusted quarterly. 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.”
Like most other businesses, the IRS closed down numerous offices in the middle of March in an effort to “flatten the curve” of the coronavirus. This meant that they could not process the typical amount of returns that they would in a usual tax year. 3% and 5% may not sound like a lot, but look at it this way: most savings accounts will only yield approximately 1.35% interest.
Taxpayers should recognize that the extra money received as interest is not “free money”, earned interest is still considered taxable income! Therefore, don’t be surprised if you receive a Form 1099-INT from the IRS early next year if you were paid more than $10 in interest. The professionals at The Center for Financial, Legal, and Tax Planning are more than knowledgeable with regards to tax returns for both businesses and individuals. Please contact us at (618) 997-3436 with any questions.