IRS Issues: Unprocessed Paper Payments and Tax Refund Interest

by Megan Hiles
Close-up photo of binders full of papers

COVID-19 has left few things unscathed this year, the IRS included.

In March, the IRS temporarily closed offices due to the public health emergency and announced the postponement of the filing deadline from April 15 to July 15. In addition, lawmakers then tasked the agency with distributing millions of stimulus checks at the beginning of April.

With all of those factors in mind, it’s not surprising that they are a bit behind this year. Here’s what you need to know:

Pending Check Payments & Payment Notices

Did you mail in a check on time to pay your taxes but recently received a balance due notice? Your check may still be unopened in the backlog of mail the IRS is processing. Any payments will be posted as the date received rather than the date processed. To avoid penalties and interest, taxpayers should not cancel their checks and should ensure funds continue to be available.

Tax Refund Interest Payments

For individuals who filed their 2019 federal income tax return on time and expect a refund, the Internal Revenue Service and the Treasury Department plan to send interest payments averaging $18 to approximately 13.9 million individual taxpayers.  It’s important to note that most of the interest payments will be issued separately from tax refunds.

A long-standing 45-day rule generally requires the agency to add interest to tax refunds on timely-filed refund claims issued more than 45 days after the return due date. This year’s due date is considered to be a disaster-related postponement, which requires the IRS to pay interest to individual income tax filers, calculated from the original April 15 filing deadline, as long as an individual files a 2019 federal income tax return by the postponed deadline, July 15, 2020.

In most cases, taxpayers who received their refund by direct deposit will have their interest payment direct deposited in the same account. Others will receive a check. A notation on the check − saying “INT Amount” − will identify it as a refund interest payment and indicate the interest amount.

By law, these interest payments are taxable, and taxpayers who receive them must report the interest on the 2020 federal income tax return they file next year. In January 2021, the IRS will send a Form 1099-INT to anyone who receives interest totaling at least $10.

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