Robert Loe CPA

IRS Interest Rates

How IRS Interest Rates Work

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.

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.

Interest rates will remain the same for the calendar quarter beginning Jan. 1, 2017. The rates will be:

  • four (4) percent for overpayments [three (3) percent in the case of a corporation];
  • 1 and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000;
  • four (4) percent for underpayments; and
  • six (6) percent for large corporate underpayments.

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.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. 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.

The interest rates announced today are computed from the federal short-term rate determined during October 2016 to take effect Nov. 1, 2016, based on daily compounding.

Revenue Ruling 2016-28, announcing the rates of interest, is attached and will appear in Internal Revenue Bulletin 2016-51, dated Dec. 19, 2016.

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