How IRS Interest Rates Work

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If you fail to pay all the taxes you owe when they are due, you may owe interest and penalties on the shortfall. The amount of interest expense you pay depends on how long you owe the IRS money, and the current IRS interest rate on underpayment of taxes.

How are IRS interest rates determined?

The IRS publishes interest rates on underpayments and overpayments for every quarter. You can find the rates on the IRS website www.irs.gov.

The rate for individual taxpayers is generally the federal short-term rate plus 3 percentage points. The rate is rounded to the nearest percentage point.

What is the current IRS interest rate?

The IRS interest rate on underpayments and overpayments by individuals is 3% for all of 2013. It remains at 3% for the first quarter of 2014. The rate is the same for all individual taxpayers.

Don't forget the penalty

If you pay less than the required amount in estimated taxes, or if you pay taxes late, you may also owe a Failure to Pay Penalty. This penalty may be .5% per month. For example, if you owe $1,000 in back taxes, you may owe a penalty of $5 for every month your payment is late. This is in addition to interest.

The IRS sometimes forgives or "abates" a penalty if you can show good cause for paying less than the required amount or paying late. You will still owe interest, however.

Can the IRS actually pay me interest?

The IRS doesn't pay you interest for holding your money all year if you have too much withheld, or if you pay too much in estimated tax. However, the IRS may pay you interest if they send your refund later than 45 days from the filing deadline for your return. If you file your return before it is due, the IRS still has 45 days from the deadline - generally April 15. If you file after the deadline of April 15, then the 45-day period begins the date on which you filed.

You may also get interest payments from the IRS if the agency assesses taxes on your return by amending it, and you later show the assessment is too high.

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Upcoming Tax Dates

September 5 — Everyone
Federal Holiday (Labor Day) Details

September 10 — Employees who work for tips
If you received $20 or more in tips during August, report them to your employer Details

September 15 — Individuals
Make a payment of your 2018 estimated tax if you are not paying your income tax for the year through withholding (or will not pay in enough tax that way). Use Form 1040-ES. This is the third installment Details

September 15 — S Corporations
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September 15 — Partnerships
File a 2017 calendar year return (Form 1065). This due date applies only if you were given an additional 5-month extension Details

September 15 — Corporations
Deposit the third installment of estimated income tax for 2017 Details

September 15 — Social security, Medicare, and withheld income tax
If the monthly deposit rule applies, deposit the tax for payments in August.

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