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IRS to Pay Interest on Refunds Issued After April 15th

IRS to Pay Interest on Refunds Issued After April 15th

In normal times, American taxpayers only earn interest on their tax refund payments if it has taken the Internal Revenue Service (IRS) more than 45 days to send them the monies that they’re owed. 

But we are not in normal times.

With the COVID-19 crisis forcing businesses to close and creating economic havoc, the IRS extended the tax filing deadline for 2019 individual tax returns from April 15th to July 15th. This not only provided a cushion for hard-hit families and individuals, but also provided the agency with the chance to revise their processes to protect its own employees. In recognition of the delay in the receipt of much-needed refund money that this shift in schedule created, Treasury Secretary Steven Mnuchin has announced that interest payments will be made for any refunds due on returns filed prior to July 15th and issued after April 15th. The interest will cover the three-month period between the previous due date and the current due date and will be treated as taxable income for taxpayers’ 2020 return.

The interest on these refunds will be paid no matter whether the tax returns were filed before or after April 15th, and their rate will be calculated on a sliding scale. In a statement, the IRS provided the following details:

"By law, the interest rate on both overpayment and underpayment of tax is adjusted quarterly. The interest rate for the second quarter, ending on June 30, 2020, is 5% per year, compounded daily. The interest rate for the third quarter, ending September 30, 2020, is 3% per year, compounded daily."

The refund will likely be paid separately from the refunds themselves and will be calculated based upon the period of time between April 15th and the date that they received their refund, regardless of whether they filed their return before April 15th.  This means that a taxpayer who filed early on April 8th and who received their refund two weeks later on April 22nd will receive interest on the period between April 15th and April 22nd. Taxpayers who took advantage of the filing extension will receive interest from April 15th through the date they receive their refund, as long as they filed by July 15th. Additionally, Secretary Mnuchin has indicated that a further extension is possible

If you have further questions about the interest being issued by the IRS, contact your tax professional.

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Steward Financial

Steward Financial

Jon Osborn is a tax preparer based in San Dimas, California. His company, Steward Financial Services, offers a broad range of tax preparation, accounting and business consulting for small businesses. He loves to work with clients who are looking for answers to complex tax and business planning issues. He has owned several small businesses and worked with over one hundred small business owners. He helps his individual and business tax clients find the best ways to spend their money in order to minimize IRS tax. Small businesses looking to grow, sell or just increase cash flow are one of Jon's specialties.

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