The penalty for underpaying your taxes is about to sting a bit more.
The IRS announced Aug. 25 that the interest rates it charges for underpayments will rise for the fourth quarter of 2023 — Oct. 1 to Dec. 31.
The rates the federal agency pays for overpayments also will rise. (Yes, if you pay more in federal income taxes than you owed, the government owes you interest on the excess.)
In the case of individual taxpayers, the rate for both underpayments and overpayments in the fourth quarter of 2023 will be 8% per year, compounded daily. That compares with 7% in the third quarter of 2023.
For corporations, the rates will be as follows:
- Corporate underpayment: 8% (up from 7%)
- Large corporate underpayment: 10% (up from 9%)
- Corporate overpayment: 7% (up from 6%)
- The portion of a corporate overpayment exceeding $10,000: 5.5% (up from 4.5%)
The IRS adjusts these rates every quarter.
In the case of individuals, the interest rate that is assessed for both underpayments and overpayments is the federal short-term rate plus 3 percentage points.
Generally, in the case of corporations, the underpayment rate is the federal short-term rate plus 3 percentage points, while the overpayment rate is the federal short-term rate plus 2 percentage points.
Large corporate underpayments garner a higher charge, the federal short-term rate plus 5 percentage points.
For the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period, the charge is the federal short-term rate plus one-half of a percentage point.
