I recently got a tax refund check. At the bottom there is this note
3.78 PERCENT INTEREST 46 DAYS
And I’m not really sure what this means. My first guess was that I would get some extra money if I hung onto the check for 46 days before cashing it, which is why the check is still on my kitchen table instead of in the bank. In this case the interest amounts to around 50 bucks which I would like to have since I don’t need to cash the refund check right away.
But I’m not sure and getting concerned that this may refer to some counter-intutitive penalty for not cashing the check right away.
And if I do get interest on the check how would that work? Would they just credit me extra or would they send me another check? Can anyone with any IRS experience enlighten me?
You will get exactly the amount on the check regardless of when you cash it. Interest does not accrue on a check, nor do penalties accrue, if you do not cash it.
The note on the bottom may refer to something that went into calculating the amount of your refund. Does the amount on the check match the amount that your tax return showed that you expected for a refund?
It means that the IRS paid you interest on your return and that that amount is included in the check. You won’t get any more interest by not cashing it. The check is for whatever amount is stated on the check and that will not change based on when you deposit it.
And even if it did accrue, if you have a $1300 check sitting around, it’s not like 3.78% interest means you’d get $50 on that check the moment the interest starts accruing. That’s what you’d get after a year of the interest accruing, as interest rates are typically expressed per annum.
Whatever you do, do not do what I did: Write “Pay to Treasury” on the back of the check and mail it in with Form 1040 to help pay the next year’s tax.
It took follow-on to get IRS to credit me at all, and when they did they subtracted the interest from the credit. (And the interest was substantial.) On inquiries, IRS kept pointing to some clause or regulation but never could explain how deducting the interest could be fair on a check I could have simply cashed for full value at any U.S. bank.
While you do not have to report a federal refund on your federal return, you do have to report the interest on the federal refund, since it is taxable. If the amount is at least $10, the IRS will send you a 1099-INT at the end of the year showing the amount of interest paid. You are supposed to report interest whether or not you get a 1099-INT, though I realize few people actually do it.
If you live in one of the few states that allows a deduction for federal taxes paid, you may have to report the refund on your state income tax form if you took a deduction for federal taxes paid. See, for example, line 27 of the 2011 Iowa Form IA 1040.