Many companies featured on Money advertise with us. Opinions are our own, but compensation and
in-depth research determine where and how companies may appear. Learn more about how we make money.

Advertiser Disclosure

The purpose of this disclosure is to explain how we make money without charging you for our content.

Our mission is to help people at any stage of life make smart financial decisions through research, reporting, reviews, recommendations, and tools.

Earning your trust is essential to our success, and we believe transparency is critical to creating that trust. To that end, you should know that many or all of the companies featured here are partners who advertise with us.

Our content is free because our partners pay us a referral fee if you click on links or call any of the phone numbers on our site. If you choose to interact with the content on our site, we will likely receive compensation. If you don't, we will not be compensated. Ultimately the choice is yours.

Opinions are our own and our editors and staff writers are instructed to maintain editorial integrity, but compensation along with in-depth research will determine where, how, and in what order they appear on the page.

To find out more about our editorial process and how we make money, click here.

By Kenadi Silcox
August 27, 2020
Shutterstock

The next time you check your bank account, you might find a small surprise among your regular payments and purchases.

Nearly 14 million individual taxpayers will receive a small interest payment in the coming weeks, the IRS announced recently. The payments will average around $18 and will be deposited in the same manner that individuals received their tax returns — for most this means a direct deposit to their bank account. The rest will be mailed out with a notation on the check indicating it is a refund interest payment.

Why is the federal government paying you interest? 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. In other words, if you are set to get money back from your taxes, and you filed ahead of the annual deadline, interest will start accruing on that money if the government is late paying you. Normally, this affects a relatively small number of taxpayers, but this year, due to staff shortages and the pandemic, the IRS was slower than normal with refunds. (The agency was busy issuing stimulus checks, too.)

Ads by Ad Practitioners
If you're struggling to make ends meet, a Personal Loan can help.
Were you less than prepared for extraordinary events? If you need funds to cover unexpected costs, a Personal Loan is a solution. Click on your state to learn more.
HawaiiAlaskaFloridaSouth CarolinaGeorgiaAlabamaNorth CarolinaTennesseeRIRhode IslandCTConnecticutMAMassachusettsMaineNHNew HampshireVTVermontNew YorkNJNew JerseyDEDelawareMDMarylandWest VirginiaOhioMichiganArizonaNevadaUtahColoradoNew MexicoSouth DakotaIowaIndianaIllinoisMinnesotaWisconsinMissouriLouisianaVirginiaDCWashington DCIdahoCaliforniaNorth DakotaWashingtonOregonMontanaWyomingNebraskaKansasOklahomaPennsylvaniaKentuckyMississippiArkansasTexas
Get Started
ADVERTISEMENT

There’s also a new component this year: the tax filing deadline was pushed back to July 15 due to the COVID-19 crisis; during a disaster-related delay such as this, the IRS is legally required to pay interest on money owed to anyone who hasn’t received their return by the original April 15 deadline. That includes people who filed after April 15 but before the July deadline.

The interest is paid by the official rates designated by the IRS, so from April 15 to June 30, it was 5% compounded daily, and then 3% compounded from July 1 onward. If you’re wondering how they manage to figure out such high percentage points while your savings rate at the bank keeps on shrinking, it’s because the IRS calculates its rates by taking the federal short-term rate and adding three percent.

Unfortunately, these interest payments are not available to every taxpayer. If you filed early as encouraged and received a full tax return before the April 15 deadline, you are not eligible for an interest payment because the federal government didn’t hold onto your tax dollars after the original deadline.

While a few extra dollars can certainly be exciting to see, especially if you’re one of the thousands of Americans whose refund was severely delayed, taxpayers who receive interest payments should know that these payments are taxable, meaning you will need to report the interest on your 2020 federal income tax return when you file. The IRS has stated that it will be sending out Form 1099-INT to anyone whose interest payment is at least $10.

Ads by Ad Practitioners
You never know when you might find yourself financially strapped - the good news is you have options.
A personal loan can help you mitigate losses and get back on track. Click here to explore your options!
Apply Today
ADVERTISEMENT

More from Money:

While the Nation Waits for a Second Stimulus Check, a Florida County Is Giving Residents $5,000 to Pay the Bills

When Will It Get Easier to Buy a Home? 8 Experts on the Nation’s Housing Shortage

Second Stimulus Check Update: Are We Still Getting Another Round of COVID Relief?

Advertiser Disclosure

The purpose of this disclosure is to explain how we make money without charging you for our content.

Our mission is to help people at any stage of life make smart financial decisions through research, reporting, reviews, recommendations, and tools.

Earning your trust is essential to our success, and we believe transparency is critical to creating that trust. To that end, you should know that many or all of the companies featured here are partners who advertise with us.

Our content is free because our partners pay us a referral fee if you click on links or call any of the phone numbers on our site. If you choose to interact with the content on our site, we will likely receive compensation. If you don't, we will not be compensated. Ultimately the choice is yours.

Opinions are our own and our editors and staff writers are instructed to maintain editorial integrity, but compensation along with in-depth research will determine where, how, and in what order they appear on the page.

To find out more about our editorial process and how we make money, click here.

EDIT POST