If you're still waiting for your federal tax refund, the Internal Revenue Service has a bit of good news for you.
When you finally get the amount that you overpaid on your 2019 taxes, Uncle Sam will tack on a bit on interest to make up for your wait.
Actually, it's more than a bit if you compare it to current interest rates for most accounts.
The IRS this week announced this week that it will be paying a 5 percent annual interest rate on refunds issued between April 15 and June 30. Since the IRS adjusts its interest earning and collection rates quarterly, refunds issued between July 1 and Sept. 30 will earn an added 3 percent annual rate.
Even if you get the 3 percent instead of 5 percent, you'll still come out ahead. The highest yielding savings accounts right now are earning only about a quarter of that, or around 1.35 percent.
Paying for COVID-19 delay: The IRS interest announcement is not totally unexpected.
The usual April 15 Tax Day was postponed until July 15 this filing season because of the coronavirus pandemic. That also threw IRS operations into chaos.
The IRS, like most government agencies and private businesses, closed in mid-March to help flatten the coronavirus spread curve. That mean the tax agency was unable to process most returns or send out associated refunds.
In what we now have come to call normal tax years, the IRS starts calculating interest on refunds if it takes the agency more than 45 days after the filing deadline for the money to be delivered to filers. And by law, even in coronavirus tax time, that's still April 15.
And while it is based on your refund, it's also possible that you'll get the added payment as a separate check. So don't freak out if your refund arrives without the interest included.
Earned interest is taxable income: Nobody is going to turn down a few extra tax dollars tacked onto a refund. Note, however, that the interest is taxable and, depending on your filing situation, you may owe taxes on it when you file your 2020 return.
The IRS will make sure you don't forget about it by sending you, if the interest amount is $10 or more, a Form 1099-INT early next year.
You also might find these items of interest:
- The many versions of IRS Form 1099
- Interest offers tax savings, costs and more forms
- All your income, even that not reported on 1099s, must be reported on 1040
|Coronavirus Caveat & More Information
In 2020, we're all dealing with extraordinary circumstances,
both in our daily lives and when it comes to our taxes.
The COVID-19 pandemic and efforts to reduce its transmission
and protect ourselves and our families means that,
for the most part, we're focusing on just getting through these trying days.
But life as we knew it before the coronavirus will return,
along with our mundane tax matters.
Here's hoping that happens soon!
In the meantime, you can find more on the virus and its effects on our taxes
by clicking Coronavirus (COVID-19) and Taxes.