Interest from the IRS?

Yes, it's a 1099-INT. They don't send the normal looking form. I guess they are above the law :).

You must have received a refund. The IRS pays generous interest on refunds.

Does this mean I should be applying for refunds, and not applying a credit to next year's estimated taxes?

I think he was being ironic. The IRS doesn't pay very high interest, and it only pays interest when it sends you a refund late (I forget the time period they have). Most people getting refunds get no interest at all.

So no, it's not a good idea to pay too much and then ask for a refund if you don't need to.

___ Stu

The usual suspect is an amended return resulting in a prior-year refund, but they also have to pay interest if they don't get a normal refund out within 45 days after the return is filed (IRC 6611). The rate is the same they charge for underpayments, currently 3%, which is quite generous in comparison with what savings accounts are paying today.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

No irony. Sorry, when you file an amended return, the refund is usually paid back with interest. Per the law the interest rate is 2% to 3% higher than the market rate, which makes it very generous.

The nominal interest rate is low. But in reality it's not.

First, the IRS doesn't pay interest on everything - only when they haven't sent the refund within the time alotted - as I recall it's

45 days after April 15 or when the return is filed, whichever is later.

How many people are actually paid interest? Few would be my guess. If they do get your overpayment back to you late - say June 15, you get interest for 15 days. But that's for one-quarter of the time you could have been paid interest if you had invested it elsewhere on April 15.

And given that most payments are made before April 15, and there is no interest paid on those until starting the beginning of June, that's even more interest lost.

It sure doesn't seem like a great deal to me - at least not one someone should try to encourage or plan for.

___ Stu

[...]

I heard that some large corporations used to do this -- figure out ways to legitimately overpay, then wait a while and get back refunds with interest that was better than they could get elsewhere. This is why there is now a much lower interest rate on corporate refunds.

"The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point."

Further, if someone significantly overpays without a reasonable expectation that they are paying just their liability, I suspect the interest could be disallowed (similar to people who grossly overpay state estimated taxes to try to shift deductions from one year to another -- the deduction can be disallowed).

In this particular case, I'd say the strongest argument against is that if it was a good deal for the taxpayer, many more people would be doing it. Since they are not, it must not be that good a deal.

On 2013-01-27 15:43, Mark Bole wrote: [...]

I take that back -- I think interest on overdue refunds or balance due is statutory, but maybe fraudulent actions would negate the statutory requirement.

Note I'm talking about amended returns, not original returns. Also you won't get interest on all amended returns, such as for NOL if I'm not mistaken.