IRS Is Paying More Interest Than A Bank On Tax Refunds For Returns Filed By Midnight

Taxpayers that file their tax return by midnight Wednesday will receive more money as part of their refund from the IRS than they may have in the past.

The IRS is paying up to 5% interest on tax returns filed by the extended deadline. This means that tax filers will earn credited interest on tax refunds paid after April 15, which was the initial filing date for 2019 taxes.

The added incentive from the IRS will allow filers to receive interest payments from April 15 until the date of their refund, with interest being mailed separately in some cases. But to receive the added interest, taxpayers need to make sure their taxes are filed by midnight Wednesday.

The added interest will also be paid to tax filers that submitted their taxes and are still waiting on a refund as the IRS was closed due to the coronavirus. The IRS has issued the interest payments to encourage taxpayers to submit their taxes amid the pandemic and within the deadline instead of filing an extension.

"This year’s July 15 filing date is considered a disaster-related postponement of the filing deadline," Eric Smith, IRS spokesman, told CNBC.

"Where a disaster-related postponement exists, the IRS is required by law to pay interest, calculated from the original April 15 filing deadline, as long as an individual income taxpayer files a 2019 tax return by the postponed deadline —July 15, 2020, in this instance," he added.

The IRS does adjust its rate for interest every quarter, offering 5% for the second quarter of this year or until June 30, and 3% until Sept. 30 or the end of the third quarter of 2020. Interest is compounded daily until refund payments are made, the IRS said on its website.

Interest paid by the IRS will be taxed on 2020 returns as filers will receive a Form 1099-INT from the IRS that will need to be submitted with 2020 tax filings.

Those who owe money to the IRS for their 2019 taxes will not receive interest payments but rather face penalties of 0.5% of the taxes owed with a 5% penalty for unpaid tax for those who don’t file.