When the COVID-19 pandemic exploded in the U.S. in March, the IRS was relatively quick to push back the deadline for filing taxes from April 15 to July 15, giving Americans three more months to get their returns together at a time when so many were reeling from the crisis. That deadline extension was a helpful move in theory, as many Americans took advantage of that extra time. But that also meant that many tax filers ultimately had to wait longer to get their refunds.
But some good news just emerged on that front, because the IRS has announced that it will be paying filers interest on tax refunds that are issued after April 15. And to be clear, that includes any filer who submits a return by the July 15 deadline.
In other words, if you submit your tax return on July 10, you'll still be paid interest dating back to April 15. And at a time when so many Americans are desperate for money, that interest may really come in handy, especially if you're looking at a sizable refund.
An act of goodwill?
By law, the IRS does not have to pay tax filers interest on refunds as long as those refunds are issued within 45 days of either the tax-filing deadline (usually April 15) or the date a return is actually filed -- whichever comes later. If that deadline is missed, then interest for an overdue refund will date back to the filing deadline, the date a return is received, or the date a payment is made -- whichever is latest.
This year, however, the IRS is using the earliest starting date -- April 15 -- as its basis in calculating refund interest. And while most taxpayers aren't fans of the agency, it should be noted that this gesture will no doubt put more money into the pockets of those who really need it.
How much interest will you get on your overdue tax refund?
The amount of interest you're eligible to get on your tax refund will depend on when it's issued. If your refund is issued between April 15 and June 30, you'll earn 5% interest, compounded daily. If your refund is issued between July 1 and Sept. 30, you'll earn 3% interest, compounded daily. And again, this applies to anyone who submits a tax return by July 15. If you need more time than that to file your taxes, you can request an extension, at which point you'll get until Oct. 15 (six months from the date of the original deadline) to get your return in to the IRS.
Keep in mind, though, that a tax extension only gives you more time to file a return; it doesn't give you extra time to pay a tax debt you owe. While most tax filers do end with a refund each year, those who land in the opposite scenario and don't pay their tax bills on time will owe interest to the IRS.
The IRS typically issues refunds for electronically filed returns within 21 days of receipt. Refunds for paper returns take twice as long under normal circumstances, and this year, they're taking even longer -- but that could actually result in a higher payout for you when you factor in the interest you'll be eligible to collect.