Since the IRS has extended the 2019 tax deadline to July 15, 2020, there are millions of Americans still waiting for refund checks.
And it's not just people who haven't filed yet who haven't received their refunds -- the IRS is also sitting on around 4.7 million unopened paper returns because of staffing shortages and shifted priorities when the agency became responsible for sending out millions of stimulus checks.
But no matter what size your refund is, you may be surprised to find your check is a little bit larger than you were expecting when you eventually get the money. Here's why.
The IRS will be paying interest from April 15 on refunds that were due
While the IRS extended the deadline for tax filing, you were still due your refund on April 15. And whether you didn't get it because you waited to submit your return or because the IRS was delayed in processing paper returns, the bottom line is that the agency was hanging onto money that belonged to you.
Now, the IRS has announced it'll be making that right by paying interest from April 15 -- even if you haven't sent in your return to request your refund yet. This interest may be deposited along with your refund, or the agency has indicated that the money may be received separately, so you could find yourself getting one larger payment than expected or even receiving two payments.
While this is great news, it may be a little confusing to figure out just how much extra money you're getting. That's because the interest rate on overpaid taxes is adjusted each quarter. The rate of interest the IRS will pay is:
- 5% from April 15 to June 30, 2020 (that's the interest rate for the second quarter of the year)
- 3% from June 30 on (that's the interest rate for the third quarter, which ends Sept. 30, 2020)
Interest is compounded daily. If you're owed $2,881 (the average refund as mentioned above), you could find yourself getting back around $2,915.31 if you get your refund on July 15 -- netting yourself an extra $34.
That's not a huge chunk of change, but it's something -- and it's nice to get since the IRS has been making use of your money for all this extra time.
File your returns ASAP to get your money back
Although it's good news that you'll be getting interest on your refunded money, you should still aim to file your returns ASAP so you can get your cash back.
The country is officially in a recession right now, and you should put that money to good use by shoring up your emergency fund, paying down debt, or investing it. The sooner you submit your returns, the faster you'll be able to get your cash back -- plus interest -- so you can start making your money work for you.