The Internal Revenue Service is increasing the interest rates it can charge taxpayers for under- or overpayments, starting July 1. This follows the trend of interest rates for consumer loans and other financial transactions.
The Internal Revenue Code dictates that IRS’ interest rates be calculated on a quarterly basis. The rates are split between corporate tax payers and non-corporate tax payers.
What are the new rates?
The IRS says the new rates will be 5% for overpayments (if the taxpayer is a corporation, the rate is 4%); corporate overpayments exceeding $10,000 draw a 2.5% rate; underpayments get a 5% rate; and large-corporate underpayments will add 7%.
In most cases, the underpayment rate for a corporation will be the federal short-term rate plus three percentage points. For corporate overpayments, the rate is the federal short-term rate plus two percentage points.
If the taxpayer is a large corporation, the underpayment rate swells to the federal short-term rate plus five percentage points. If a large corporation makes an overpayment that is more than $10,000 for the taxable period, its overpayment rate will be calculated as the federal short-term rate plus one-half (0.5) of a percentage point.
The new third-quarter rates are calculated using the federal short-term rate that took effect May 1 and are based on daily compounding.
The full schedule of interest rates is listed in Revenue Ruling 2022-11, which officially announces the new rates in Internal Revenue Bulletin 2022-23, dated June 6, 2022.
Source: IRS interest rates increase for the third quarter of 2022