Close to 14 million individual taxpayers who filed their 2019 Federal income tax returns on time and received a refund will or already have received interest on their refunds.
Why?
The IRS is required to pay interest on tax refunds due to individual taxpayers affected by the federally declared disaster (COVID-19 Pandemic) who filed their Federal income tax returns for 2019 on or before the postponed due date of July 15th, 2020. The interest will generally accrue from the original due date of April 15th, 2020 until the date the refund is issued.
Eligibility
Individual taxpayers who filed their 2019 Federal income tax return on or before July 15th, 2020 will be eligible to receive interest on their refund if the refund payment was issued after April 15th, 2020. No interest will be paid for refunds received before April 15th, 2020. Business entities are not eligible to receive interest.
Calculation
The interest payments are calculated with a legally prescribed rate that is adjusted quarterly. The rate for individual taxpayers for the second quarter was 5% compounded daily. The rate for individual taxpayers for the third quarter dropped to 3% compounded daily.
Payment
Individual taxpayers that have already received their refund and are eligible for the interest will receive the interest in a separate payment. If you received your refund by direct deposit the interest payment will be direct deposited into the same account. Everyone else will receive the interest payment in the mail by paper check. The check will have a notation on it (INT Amount) identifying it as an interest payment on your 2019 Federal income tax refund.
Taxable Income
Interest payments on tax refunds are taxable income. You will receive a Form 1099-INT from the IRS if your interest payment is over $10. You will want to keep Form 1099-INT with your records and provide this to your accountant so it can be reported as taxable income on your 2020 Federal income tax return.