You might get an interest check for your late tax return—here’s who qualifies and what to do with the money

While the second round of stimulus checks[1] are still in limbo, a small category of taxpayers can anticipate getting some additional cash sometime soon, this time from the IRS.

According to a press release,[2] nearly 14 million Americans will receive an interest payment check for their delayed tax refunds.

A long-standing law requires the IRS to pay interest to those who received their tax refunds late — notably 45 days after the typical filing date of April 15. Just as taxpayers must pay interest on any outstanding obligations they owe to the IRS, the rule works both ways if the IRS is late on the money they owe back.

With the onset of the coronavirus pandemic[3] pushing back the filing deadline to July 15 this year, the IRS is paying interest calculated from the original April 15 filing deadline. The interest refund checks aren’t necessarily a big windfall of money in your pocket, but you can still make the most of the extra cash.

Here’s who qualifies

You will get an interest payment either directly deposited into your account or by paper check from the IRS for your late tax return if you:

  • Filed a 2019 return by this year’s postponed deadline and received a tax refund after April 15
  • Filed a 2019 return by this year’s postponed deadline and expect a refund soon

The IRS is only required to pay interest on late tax refunds to individual income tax filers, so businesses are not eligible. Those who receive the interest payment should keep in mind that they are considered taxable income. The money will be reported when you file your 2020 federal income tax return in spring of 2021.

What to do with the money

If you qualify for an interest payment, prepare for it to be minimal. The IRS says[4] that the average interest payment is about $18.

Though it’s not a big payout, something this small can grow to be much more if you stash it in the right place. Thanks to compound interest[5], which is essentially earning interest on interest, you don’t need much money to get started saving.

In fact, CNBC Select found that putting just $20 each week into a high-yield savings account[6] can help you save $1,000 in one year[7]. Use your small tax refund to kick-start your $20 per week savings habit, and 12 months from now you could see an extra $1,000 in your name.

And because high-yield savings accounts are FDIC-insured up to $250,000, you can rest knowing that your money is in a safe and secure place. For this reason, they make a great emergency fund[8].

To find the right high-yield savings account for you, check out our top five favorites[9]. Remember that the best ones, such as the Ally Online Savings Account[10] and Varo Savings Account[11], offer an APY greater than one you find in a traditional savings account[12], come with zero monthly fees and no (or low) minimum balance or deposit requirements.

Ally Bank Online Savings Account[13]

On Ally Bank’s secure site

  • Annual Percentage Yield (APY)

  • Minimum balance

  • Monthly fee

    No monthly maintenance fee

  • Maximum transactions

    Up to 6 free withdrawals or transfers per statement cycle *The 6/statement cycle withdrawal limit is waived during the coronavirus outbreak under Regulation D

  • Excessive transactions fee

  • Overdraft fees

  • Offer checking account?

  • Offer ATM card?

    Yes, if have an Ally checking account

Varo Savings Account[14]

Information about the Varo Savings Account has been collected independently by CNBC and has not been reviewed or provided by the bank prior to publication. Bank Account Services are provided by Varo Bank, N.A., Member FDIC.

  • Annual Percentage Yield (APY)

    0.81% (with option to earn up to 2.80% if meet requirements)

  • Minimum balance

  • Monthly fee

  • Maximum transactions

    Up to 6 free withdrawals or transfers per statement cycle *The 6/statement cycle withdrawal limit is waived during the coronavirus outbreak under Regulation D

  • Excessive transactions fee

  • Overdraft fees

    None up to $50; anything greater, Varo would decline the transaction

  • Offer checking account?

  • Offer ATM card?

    Yes, if have a Varo checking account

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

References

  1. ^ second round of stimulus checks (www.cnbc.com)
  2. ^ According to a press release, (www.irs.gov)
  3. ^ coronavirus pandemic (www.cnbc.com)
  4. ^ IRS says (www.irs.gov)
  5. ^ compound interest (www.cnbc.com)
  6. ^ high-yield savings account (www.cnbc.com)
  7. ^ save $1,000 in one year (www.cnbc.com)
  8. ^ emergency fund (www.cnbc.com)
  9. ^ our top five favorites (www.cnbc.com)
  10. ^ Ally Online Savings Account (www.cnbc.com)
  11. ^ Varo Savings Account (www.cnbc.com)
  12. ^ traditional savings account (www.cnbc.com)
  13. ^ Ally Bank Online Savings Account (www.ally.com)
  14. ^ Varo Savings Account (www.cnbc.com)

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