In Zero-Rate Fed World, Americans Get 5% -- on Late Tax Refunds
The Internal Revenue Service is sending interest payments -- averaging $18 -- to 13.9 million taxpayers who were due a refund.
(Bloomberg) -- Taxpayers who took advantage of the extended July 15 tax filing deadline this year may see a little something extra from the IRS in their bank account or mailbox this week.
The Internal Revenue Service is sending interest payments -- averaging $18 -- to 13.9 million taxpayers who were due a refund and hadn’t received it by April 15, according to the agency.
The tax filing deadline extension -- to July 15 from April 15 because of the coronavirus pandemic -- means that the IRS owes taxpayers interest on their refund amounts accruing from the original April filing deadline until the date that the refund is issued.
The IRS is paying a 5% interest rate through June 30 and 3% after that, compounded daily -- a multiple of the rates currently available to savers from bank or money market funds, depressed by the Federal Reserve’s near 0% policy benchmark. The interest payment may come separately from the refund, the IRS said. Only individual taxpayers are eligible and businesses don’t qualify.
“In most cases, taxpayers who received their refund by direct deposit will have their interest payment direct-deposited in the same account,” the IRS said in a statement Tuesday. “About 12 million of these payments will be direct-deposited. Everyone else will receive a check.”
There’s a small catch though. That income is taxable, and recipients must report it on the tax returns they file next year. The IRS will be sending paperwork to anyone who receives at least $10 to report it on their filings in 2021.
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