In November 2023, the IRS announced it would not raise federal tax interest rates in the first quarter 2024. The rate will remain at 8 percent for most taxpayers, compounded daily. The rate remains at 7-10 percent for corporations. A few years ago, this rate was at 3 percent, so rates this high have affected many taxpayers with tax debt or underpayments on quarterly taxes.
How IRS Interest Rates Are Set
The IRS interest rate is based on the federal short-term rate plus three percentage points for individual taxpayers. The federal short-term tax rate is set quarterly by the Federal Reserve.
Current IRS Interest Rates
- For individual taxpayers, the rate is 8 percent for pending debt or underpayments.
- For corporate taxpayers, the rate is 7 percent.
- For large corporations, the rate for underpayments is 10 percent.
Federal Rate Predictions
Kiplinger predicts the Federal Reserve will modestly cut the short-term interest rate throughout 2024 and 2025. Forbes notes that the short-term rate will likely end in 2024 between 4 and 5 percent. While the Federal Reserve hinted that it expects to make rate cuts in 2024, it has taken no formal action. Reliable sources agree that the rates will not return to “near zero” (resulting in a 3 percent federal tax interest rate) any time in the near future. The odds are that high interest rates will remain in place throughout 2024.
How to Minimize Interest Paid to the IRS
- Pay tax debt on time if you are able.
- Negotiate an installment agreement.
- Avoid underpayments of quarterly taxes.
- Negotiate a reduction in penalties.
Tax interest rates remain incredibly high for individual and corporate taxpayers, and they are expected to fall only modestly in 2024. It is vital to consult a tax professional to avoid accruing tax debt through underpayments. Highland Tax Resolution can advise you on the best option for your situation and can negotiate installment agreements or other arrangements with the IRS.