What interest is paid on 1040-x refunds?
I’m considering recharacterizing my 2008 TIRA to Roth conversion because of its reduction in value. My understanding is that I will have until October 15, 2009 to complete that transaction including the filing of an amended 1040 return. I am also of the opinion that the IRS pays interest on any refund generated on a 1040-X although obviously not on a regular 1040 refund. Since I have already paid the taxes on the conversion via 1040ES I will be entitled to a refund. If the above statements are correct, does anyone know what rate of interest the IRS is paying? Knowing the government, it is probably more than my local bank!
Permalink Submitted by mk foss on Mon, 2009-01-19 21:51
The interest rate is the same one that’s used for underpayment penalties and is charged on late filed returns. The rate is announced and can be changed quarterly. Go to http://www.irs.gov for the latest.
Although interest is calculated daily, you need to know the period over which it is paid. There is no interest on an overpayment shown on Form 1040 unless they don’t pay the refund for 6 weeks after April 15 or after they receive the return, whichever is later. So if someone extended the 2008 return and actually filed it May 1, 2009 there would be no interest unless the interest wasn’t paid until later than mid June.
On the Form 1040x, interest is accrued from April 15 (following the calendar year the refund relates to) until they process the refund.