- The IRS will pay interest to individuals whose tax refunds have been delayed.
- The IRS is currently backlogged with returns on account of the coronavirus lockdown from a few months ago.
- As a result of the lockdown, which drastically reduced the IRS’ labor force, the deadline for filing a tax return was pushed back to July 15.
If you’ve been patiently waiting for your 2019 tax refund from the IRS to come in, you’re not alone. According to reports, millions of Americans still haven’t received a refund, an issue that can be traced back to the coronavirus lockdown that effectively brought the country to a standstill for a three-month period earlier in the year. The coronavirus pandemic also prompted the IRS to push back the tax return filing deadline from April 15 to July 15.
As it stands now, the Taxpayer Advocate Service estimates that the backlog of tax returns yet to be processed is somewhere in the range of 4.7 million. Notably, most of these delayed returns were paper-filed.
The IRS being behind schedule is certainly understandable. Still, the delay couldn’t come at a worse time given that unemployment has been at a historically high level ever since the coronavirus left millions of Americans stuck at home and out of work. And now that the coronavirus is reaching new highs in a number of states across the country, it’s not outrageous to think that another lockdown might be in the cards. Put simply, millions of Americans aren’t in a position where they can patiently wait for their IRS refund check to come in.
The good news, though, is that the delay might entitle individuals to an interest payment on top of their tax refund.
The IRS issued a statement to this effect just a few days ago:
Interest on individual 2019 refunds reflected on returns filed by July 15, 2020 will generally be paid from April 15, 2020 until the date of the refund. Interest payments may be received separately from the refund.
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 IRS typically has 45 days to issue a refund from the moment it processes your return. That being the case, the IRS has until the end of August to get its act together. The good news, though, is that the IRS typically does everything in its power to avoid paying interest on tax refunds. In other words, individuals will hopefully get a refund sooner rather than later. And in instances where 2020 tax refunds are delayed, it’s reassuring that folks forced to wait will receive a little bit extra for their troubles.