COVID-created tax refund interest payments going to nearly 14 million filers
Sunday, August 23, 2020
Almost 14 million U.S. taxpayers are getting a few extra dollars from Uncle Sam.
If you're one of them, you can thank the Internal Revenue Service and the COVID-19 changes to the 2020 filing season.
Pandemic tax season timing tweaks mean that these regular refund recipients also will be getting some interest — an average of $18 — in addition to their expected tax-back amounts.
Interesting deadline days: The IRS announced the upcoming interest payments back in late June. Now it's making good on that promise, which was necessitated by this year's Tax Day delay.
The postponing of the filing due date to July 15 to accommodate pandemic precautions is considered a disaster-related postponement of the filing deadline, notes the IRS.
Where a disaster-related postponement exists, the IRS is legally required to pay interest, calculated from the original April 15 filing deadline, to any individual taxpayer who filed a 2019 federal income tax return by the postponed deadline.
The IRS interest calculations in these cases are based on quarterly adjusted interest rates of 5 percent at the end of June and 3 percent since July 1. Where the refund issuance crossed quarters, a blended interest rate applies.
The end result of all that interesting math, says the IRS, is an average additional interest amount of $18.
Here in Austin, $18 should get you a decent Tex-Mex take-out dinner, guacamole included. That's just another reason that $18 is this weekend's By the Numbers figure.
Timing is key: Do you remember when you filed your return earlier this year? You might want to check your tax records for the date. It affects who gets an interest payment.
Specifically, both the usual and delayed tax deadlines are key.
The interest payments will be made to individual taxpayers who filed a 2019 return by this year's July 15 deadline and either received a refund in the past three months or are expecting a refund.
But if you were an early filer, you're out of interest payment luck.
The IRS says it won't add any interest to refunds that were issued before the original April 15 deadline.
Delivery methods: Electronic issuance is how most of the 13.9 million eligible refund recipients will get their interest payments. The IRS says it's directly depositing about 12 million of them.
If you already got your federal tax refund via direct deposit, check that bank account. Your coronavirus interest amount also will be delivered that way.
In fact, the extra tax money could already be there. The IRS began issuing the interest payments last week.
If you're still waiting on your refund to be credited to your financial account, you'll probably get your refund and interest payment as separate electronic entries.
And if you got or are expecting your refund as a paper Treasury check, that's how you'll get your interest amount. The second check will the notation "INT Amount" to designate it from your refund check.
Refund, but not to filers: Then there are those folks who like to have any refund they're due go toward the next year's tax filing.
I've done that in the rare instances, like this goofy filing season, where the hubby and I have had an unexpected refund. It reduces the amount of estimated tax we have to come up with the rest of the year.
Do taxpayers who did that this year when they filed between April 15 and July 15 also get an interest payment? If so, will it go to the taxpayers in check form or also be applied, like their refunds, to their tax obligations for the 2020 tax year?
The IRS was having technical issues today when I tried to check my online IRS account, so I can't say if an interest payment showed up there. I've contacted the IRS about this and will let you know as an update to this post when I hear back.
UPDATE, Aug. 25, 2020: I must say this is what I expected. If you paid forward your tax refund, you don't get this interest payment. In fact, you never do. When an overpayment reported on an income tax return or amended income tax return is applied as a credit elect to estimated tax for the succeeding year under IRC 6402(b), credit interest is not allowed on that overpayment. See Treas. Reg. 301.6402-3(a)(5) and Treas. Reg. 301.6611-1(h)(2)(vii).
Interest is taxable income: Of course, since we're talking taxes, you knew there had to be more to this than just unexpected money.
The COVID-created interest on your refund counts as taxable income for the 2020 tax year.
That means that you must report the interest amount on the tax return you file next year.
To help you remember to do that, the IRS will send a Form 1099-INT to anyone who receives interest totaling at least $10.
And yes, even if your interest amount is less than that threshold sawbuck and you don't get a 1099-INT, you're still legally required to report the amount on your return.
Not unheard of, but different: Getting your tax refund in a timely manner, aka ASAP, is what all filers want. And one of the IRS' key goals is to make that happen.
That's why it makes a point of telling us every filing season that it issues most refunds within 21 days of getting our returns.
But it's not just good customer service that drives IRS prompt issuance of refunds. Tax law says that the agency must add interest to refunds on timely-filed refund claims issued more than 45 days after the return due date.
This year's COVID-created tax season chaos has messed with that 45-day refund rule, but it's one worth noting for future filings.
And as for this year's refund, keep an eye on your bank account or curbside mail box if you're eligible for an interest payment.
While the amounts for most folks probably aren't that much, none of us will turn down any cash. Especially not unexpected money from the tax man.
And heck, even the third quarter's lower 3 percent rate, which applies through the end of September, is a lot more than most traditional financial institutions currently are paying on the money they're holding.
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
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