The IRS has announced it has begun sending out interest payments to those individuals who received refunds and filed their tax returns after April 15 but before July 15.[1] The IRS had previously announced the agency would be sending such refunds in a news release issued on June 24, 2020 that was previously discussed on our website.[2]

The IRS explains in the news release why the payments are being made. The COVID-19 related delay in the due date announced by the IRS in Notice 2020-23 triggered this special interest rule:

This provision is different from the long-standing 45-day rule, generally requiring the IRS to add interest to refunds on timely-filed refund claims issued more than 45 days after the return due date.

Instead, this year’s COVID-19-related July 15 due date is considered a disaster-related postponement of the filing deadline. Where a disaster-related postponement exists, the IRS is required, by law, to pay interest, calculated from the original April 15 filing deadline, as long as an individual files a 2019 federal income tax return by the postponed deadline − July 15, 2020, in this instance. This refund interest requirement only applies to individual income tax filers − businesses are not eligible.

The release states that the payments will be made to those individuals who filed a 2019 return by the revised July 15, 2020 deadline set by Notice 2020-23 that received a refund. These individuals will receive an additional payment for interest. The average payment is expected to be $18 and about 13.9 million payments will be made.

The IRS details how the payments will be made to taxpayers:

In most cases, taxpayers who received their refund by direct deposit will have their interest payment direct deposited in the same account. About 12 million of these payments will be direct deposited.

Everyone else will receive a check. A notation on the check − saying “INT Amount” − will identify it as a refund interest payment and indicate the interest amount.

The method of calculation is also explained in the news release:

Interest is paid at the legally prescribed rate that is adjusted quarterly. The rate for the second quarter ending June 30 was 5%, compounded daily. Effective July 1, the rate for the third quarter dropped to 3%, compounded daily.

Where the calculation period spans quarters, a blended rate applies, consisting of the number of days falling in each calendar quarter. No interest will be added to any refund issued before the original April 15 deadline.

The IRS also reminds taxpayers that the interest is taxable, and that a Form 1099-INT will be mailed to the taxpayers where required by law:

By law, these interest payments are taxable and taxpayers who receive them must report the interest on the 2020 federal income tax return they file next year. In January 2021, the IRS will send a Form 1099-INT to anyone who receives interest totaling at least $10.

[1] “13.9 million Americans to receive IRS tax refund interest; taxable payments to average $18,” IR-2020-183, August 18, 2020, https://www.irs.gov/newsroom/13-point-9-million-americans-to-receive-irs-tax-refund-interest-taxable-payments-to-average-18-dollars#:~:text=The%20interest%20payments%2C%20averaging%20about,issued%20separately%20from%20tax%20refunds. (retrieved August 19, 2020)

[2] Ed Zollars, “Interest Will Be Paid on Refunds from April 15 to July 15,” Current Federal Tax Developments website, June 24, 2020, https://www.currentfederaltaxdevelopments.com/blog/2020/6/24/interest-will-be-paid-on-refunds-from-april-15-to-july-15 (retrieved August 19, 2020)