Most tax refund interest payments will be made by direct deposit, but some will be by paper check.
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If you get a tiny surprise payment from the Internal Revenue Service and you’re wondering what it is, it’s probably an interest payment and not a mistake. The IRS announced it’s starting to send out interest payments this week to individual taxpayers whose tax refunds were delayed. It applies to folks who filed a 2019 income tax return by this year’s July 15 deadline and either received a refund in the past three months or will receive a refund. Business taxpayers aren’t eligible for the interest payments.
The average interest payment is expected to be $18. Yours could be higher or lower, depending on the size of your tax refund. The average tax refund for this tax season is $2,741, according to IRS filing statistics through July 24.
The payment amount sounds small, but the interest rate is actually generous. The rate for the second quarter ending June 30 was 5%, compounded daily, and then effective July 1, the rate dropped to 3%, compounded daily.
About 12 million folks will get these payments by direct deposit, into the same account where their refund was deposited. The rest will get paper checks, so watch your mail. In most cases, the interest payments will be issued separately from any tax refund due.
The IRS had issued nearly 103 million tax refunds, worth $282 billion as of July 24. Millions of taxpayers were asking Where Is My Refund? in early July when the number of direct deposit refunds was running 11% behind last year. By July 24, the number of direct deposit refunds was catching up, but still down 4.8%. The IRS is still facing backlogs of paper mail (paper tax returns, and all tax return-related correspondence). Covid-19 has made for an overall challenging tax filing season. An added complication: Scammers are preying on coronavirus-related fears to steal money and information from honest taxpayers, the IRS reported in its top 2020 Dirty Dozen scam list.
Why is the IRS paying interest on tax refunds? It’s because the tax deadline was postponed to July 15 because of the coronavirus. In the case of disaster-relief postponement, the IRS has to legally make interest payments, in this case calculated from the original April 15 filing deadline.
If your interest payment is for $10 or more, the IRS will send you a Form 1099-INT in January 2021. But you’re actually required to report any amount—no matter how small—as income when you file your 2020 taxes next year.
Still waiting for your refund? The IRS Where’s My Refund? tool is the best way to check on your refund status. You’ll need your Social Security number or ITIN, your filing status (single, married, head of household) and your exact refund amount. Do not file a second tax return, and don’t just keep clicking on Where’s My Refund? It’s only updated once every 24 hours.