Stories, strategies, and tips for better personal finance. For the third quarter, which ends on September 30, 2020, the interest rate will be 3% per year, compounded daily. The IRS updates its system daily, usually overnight. This does not influence whether we feature a financial product or service. Instead, this year's COVID-19-related July 15 due date is considered a disaster-related postponement of the filing deadline. The IRS has told people who filed a paper return to expect delays. By law, the IRS is required pay interest on tax refunds if it is more than 45 days late in issuing a refund for an on-time tax return. What is the penalty for filing taxes late? If that refund payment is late by 30 days, it would accrue interest worth about $12. This provision is different from the long-standing 45-day rule, generally requiring the IRS to add interest to refunds on timely-filed refund claims issued more than 45 days after the return due date. During this time the agency was also tasked with delivering about over 160 million stimulus checks to Americans. Interest and Late Refunds. When refunds are delayed, the IRS pays interest rates far higher than bank accounts do: 5% compounded daily for … Americans who filed their 2019 federal income tax returns on time should expect a refund this week. The daily rate is the annual rate divided by 365. window.googletag = window.googletag || {cmd: []}; In January 2021, the IRS will send a Form 1099-INT to anyone who receives interest totaling at least $10. We do not give investment advice or encourage you to adopt a certain investment strategy. The IRS, by law, must pay interest on delayed refund checks. Actually, it's more than a bit if you compare it to current interest rates for most accounts. This refund interest requirement only applies to individual income tax filers − businesses are not eligible. All your questions answered about filing and paying taxes. By law, the interest rate on both overpayment and underpayment of tax is adjusted quarterly. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. Typically the IRS has a 45-day grace period after the April 15 tax deadline to issue tax refunds, but the rule doesn't apply because of the tax-deadline extension. Where the calculation period spans quarters, a blended rate applies, consisting of the number of days falling in each calendar quarter. 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. The IRS has been severly affected by coronavirus shutdowns and performed only "mission-critical functions" for at least two months. googletag.cmd.push(function() { Sign up for Personal Finance. Typically the IRS has a 45-day grace period to issue refunds to taxpayers who file by April 15 before interest starts accruing on the amount they're owed. The IRS is currently backlogged with returns on account of the coronavirus lockdown from a … This provision is different from the long-standing 45-day rule, generally requiring the IRS to add interest to refunds on timely-filed refund claims issued more than 45 days after the return due date. The IRS charges interest when taxpayers don’t pay on time and it pays interest to taxpayers when the government issues refunds too slowly. 2  These rates are higher than what most would receive in a short-term CD or high-yield savings account. googletag.enableServices(); The IRS will pay taxpayers an interest rate of 5% per year on delayed refunds, compounded daily, for the second quarter ending June 30, 2020, and 3% for the third quarter ending Sept. 30. You still need to file if you want your refund. To check your refund status, you'll need three things: Editor's note: This article has been updated to clarify that 5% and 3% are the annual rates. About 12 million of these payments will be direct deposited. If your refund is issued between July 1 and September 30, you'll earn an annual 3% interest rate, compounded daily. By law, the IRS does not owe interest on refunds if they are issued within 45 days of the due date of the return (usually April 15) or the date the return is filed, whichever is later. In most cases, taxpayers who received their refund by direct deposit will have their interest payment direct deposited in the same account. The IRS announced on Wednesday that it will pay interest on delayed refunds, the Wall Street Journal first reported. When refunds are delayed, the IRS pays interest rates far higher than bank accounts do: 5% compounded daily for the second quarter and 3% compounded daily starting July 1. As Rubin put it, the IRS is "paying for the privilege of holding on to the money since April 15," just as a taxpayer would pay the IRS if they owed money. 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