WHY DID I RECEIVE AN INTEREST PAYMENT FROM THE IRS?

There are few things better than a surprise deposit in your bank account. For about 13.9 million Americans this month, that’s exactly the “surprise” they received. The law requires, during a disaster-related postponement of a tax filing deadline, that the IRS issue interest payments on tax refunds for citizens who filed their taxes on time.

In this case, interest was calculated from April 15—the original deadline—to the new deadline, July 15. The interest rate is legally prescribed and adjusted quarterly. The interest rate for the second quarter was 5%; starting July 1, that rate dropped to 3%. All interest is compounded daily. The IRS notes on its site that only individual income tax filers are eligible for the interest payment, not businesses.

What does this mean for you? If you received or expect to receive an interest payment, you will probably find that the payments are separate from your tax refund. If you don’t see an interest payment in your account but believe you are eligible, never fear—eligible individuals who aren’t signed up to receive their tax refunds via direct deposit will receive a check labeled with an interest amount. Be aware that the payment is considered income for 2020. Those who receive interest totaling $10 or more will receive a Form 1099-INT in January 2021 for tax reporting.

Natalie Brown, CFP®
Director of Client Services
Day Hagan Private Wealth

—Written 08.21.2020.

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