If you’ve ever gotten money back after filing your tax return, you probably know what it’s like to wait for the IRS to process your refund so you can take a vacation, pay other debts or invest in your future. Considering this year’s shutdowns and July Tax Day, waiting patiently for a refund may be harder than usual right now.
However, did you know there is a chance you could receive additional money from the IRS? You are owed interest if your refund is not issued within 45 days after the acceptance of your return. As such, you might receive a larger check than you anticipated for 2019.
Taxpayers to receive interest on refunds for returns filed by July 15
The Service is no stranger to office closings due to the global health crisis. Yet, the slow response to recently filed returns could be to your benefit.
Rather than the traditional April 15 deadline, returns filed by July 15 were on time this year. Yet, despite the three-month grace period allowed, the IRS is accepting responsibility for alleged back interest.
Legal interest calculations
The timeframe for interest accrued includes days between April 15 and the date you filed your return, taking into account the legal quarterly interest adjustment. For example, the annual interest rate for the second quarter of 2020 is 5%. Starting July 1, daily compounded interest on a 3% annual rate applies.
No matter how much money you expect to get back, it can seem exciting to receive something more – especially from an unexpected source, such as the IRS. However, interest paid to you is taxable, and you will need to file a Form 1099 indicating this miscellaneous income in 2021.
Assessments and increased liability for interest received
In general, if you receive more than $10 of penalty-free interest, you must claim it on the next year’s return. Ultimately, you can be responsible for taxes owed, regardless of whether you receive a 1099.
Therefore, in addition to any interest you receive on your 2019 refund, the IRS may hold you liable for interest earned on:
- Savings bonds that meet the Educational Savings Bond Program requirements
- Certificates of deposit, insurance dividends and bank accounts
- Federal fixed-income securities, such as Treasury bills, notes and bonds
The source of the interest you receive will determine whether you owe taxes to the state and/or federal government. Since tax requirements vary between interest-bearing accounts, facing a dispute with the IRS is possible.
Alleged unpaid tax liability can lead to garnished wages, a travel ban or criminal allegations. Working with a reputable attorney who is well-versed in the United States tax code can help you understand your options in minimizing both liability and contention.