Net Worth: Interest on late refunds starts to arrive
The Internal Revenue Service said Tuesday it will send interest payments this week to about 13.9 million taxpayers who filed their 2019 federal income tax returns on time and were due a refund.
The payments, averaging about $18 each, will go to people who filed their federal tax return by this year’s postponed 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,” the IRS said in a news release.
Interest will be paid starting April 15 at the blended rate of 5% annually for the second quarter ending June 30, and 3% for the third quarter.
Some readers say they’ve already gotten an interest payment with their refund check, or assume they did with a directdeposit refund because the amount was for more than the refund they claimed.
Many more taxpayers than usual will get interest payments this year because the IRS shuttered its offices at the end of March because of the coronavirus pandemic and stopped opening mail. It gradually began to reopen them in June and July and is working through the backlog of returns.
Lawrence Little of Moraga mailed his return in mid-March and got a refund check Aug. 1, with $2.63 in interest noted at the bottom.
Herb Miller of San Anselmo said he mailed his federal tax return return on March 7. On July 16, he got a direct deposit “for $23.59 more than we claimed without any explanation. It seems to me it must be interest.”
The IRS clarified that refunds issued in the past few weeks, and that will be issued in the future, will include interest. The separate payments
generally apply to refunds issued in late April through late July.
Many taxpayers are still awaiting their 2019 refunds, including John Brooks of Fairfax, who said he mailed his return around March 15.
The IRS could not say how much it expects to pay in interest overall.
The interest payments are taxable and must be reported as interest on 2020 federal income tax returns. In January, the IRS will send a Form 1099INT to anyone who receives interest totaling at least $10.
Most taxpayers who received their refund by direct deposit will have their interest payment directly deposited in the same account. About 12 million of these payments will be issued this way. Everyone else will receive a check with the interest noted as “INT Amount.”
Normally, the IRS only has to add interest to refunds issued more than 45 days after the April 15 due date to taxpayers who file by April 15.
However, “this year's COVID19related July 15 due date is considered a disasterrelated postponement of the filing deadline,” the IRS said. “Where a disasterrelated postponement exists, the IRS is required, by law, to pay interest, calculated from the original April 15 filing deadline, as long as an individual files a 2019 federal income tax return by the postponed deadline — July 15, 2020, in this instance.” Businesses are not eligible for the interest payment.
Richard Pon, a San Francisco accountant, said he got interest with his directly deposited refund. “If a refund is higher than expected, it could be interest or a correction of error,” Pon said. However, if it was a return error, “generally you would receive a letter a week or two after the check arrives showing the adjustment.” If the refund amount includes cents, then it includes interest as interest is not rounded to the nearest dollar, whereas refund amounts are.
Efiling amended returns now accepted: On Monday, the IRS announced that it finally will begin accepting amended returns filed electronically, using commercial taxfiling software. Form 1040X, Amended U.S. Individual Income Tax Return, “has been one of the last major individual tax forms that needed to be paper filed,” the IRS said.
The IRS called this a “major milestone.” Why it took so long is unclear; the IRS has gone to great lengths to get people to efile their original tax return.
Tax pros were thrilled. “It’s a big deal for CPAs, as paper returns are just a real pain in the neck. That’s true during normal times, but especially now, during the pandemic,” when the IRS stopped opening mail for a while, said Jeff Levine, director of advanced planning with Buckingham Wealth Partners.
For now, only tax year 2019 Forms 1040 and 1040SR returns can be amended electronically. “Additional improvements are planned for the future,” the IRS said.