FAQ: IRS Interest Rates for Individuals

Every three months, individual tax filers await potential changes in the federal short-term IRS interest rate to comprehend how much the agency will bill them in the coming fiscal quarter. Taxpayers have little time to comply with IRS interest rate adjustments, which can leave many clamoring for information when it comes time to file. Individual taxpayers are often left asking themselves the following questions.

What Are the IRS Overpayment and Underpayment Rates for Individual Taxpayers? 

For the fourth fiscal quarter of 2023, the overpayment rate for individual taxpayers is 8 percent per year, compounded daily. The IRS will calculate interest from the date the overpayment was received until the refund is issued. There is also a 45-day interest-free period for overpayments.

The underpayment rate is also 8 percent for the fiscal quarter beginning October 1, compounded daily. Individual tax interest begins to accrue from the date the tax is due until the amount is paid in full.

Do Changing IRS Interest Rates Impact Tax Installment Agreements?

If you are making payments under an installment agreement, the underpayment rate will apply to the unpaid balance, potentially increasing the total amount you owe over time. The IRS may offset the two for individual taxpayers who encounter underpayments and overpayments, and interest would be calculated on the net balance.

How Do You Minimize the Impact of Underpayment Rates?

To avoid or minimize interest on underpayments, you should aim to pay any owed taxes in full by the tax deadline. You may also make estimated tax payments throughout the year to prevent accruing interest on a potential underpayment.

Can You Dispute IRS Rates? 

The IRS calculates these rates per federal regulations and laws, which are not subject to alteration. However, if you believe an error has been made in the application or calculation of interest on your account, you may contact the IRS for clarification and potential adjustment.

Can You Get Help With Overpayments and Underpayments? 

You can get valuable guidance when unsure how to proceed with your tax problem. Reach out to the Highland Tax Group to better understand how the IRS applies its current rates, ways to minimize underpayment impact, and approach your situation in the coming fiscal quarter.