Forget high interest savings accounts. The IRS credits up to 5% for late tax returns.
The government agency announced that it will provide interest on tax refunds that will be issued after April 15, the initial date for the execution of federal tax returns for 2019.
Keep in mind that the IRS has pushed back a new payment date for returns until July 15th. Interest refers to declarations filed by then.
Interest is a sweetener for people who have been waiting for months for a tax refund – because they either filed paper returns or require an additional tax check – and were blocked by the agency’s gradual return to operations during a coronavirus outbreak.
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The interest rates offered by the IRS nearly beat any savings account.
The agency adjusts the rate every quarter. For the second quarter ending June 30, this loan of 5% per annum is charged daily.
Meanwhile, the interest rate for the third quarter ending September 30 is 3%.
In comparison, top-end high-yield savings accounts currently earn about 1.35%, according to Bankrate.com,
Of course, there is one catch: any interest you receive from the IRS will be taxed when you file your 2020 tax return next spring.
“It’s not free money,” said Dan Herron, CPA and director of Elemental Wealth Advisors in San Luis Obispo, California. “Are you going to get Form 1099-INT from the IRS in 2020. “
Be sure to set aside a few dollars to cover your interest tax bill.
Need money now? Do not wait
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Tax refunds often make up a large part of the change. The average refund as of June 12 was $ 2767.
In comparison, the IRS is conducting pandemic incentive checks of up to $ 1,200 per person, plus $ 500 for each eligible child since Congress passed CARES in March.
Although it may seem tempting to wait and let your interest build up, you should get a refund – preferably through an electronic file – as early as possible if you need money.
“It’s great that you get 5% of your refund, but in the end, the refund is more important than interest,” Herron said. “Any money you can withdraw is profitable.”