The federal tax interest rate for the second quarter of 2026 is 6% per year on both underpayments and overpayments for individual taxpayers. The IRS resets this rate every quarter using a formula tied to the federal short-term rate, and interest compounds daily on any unpaid balance.1Internal Revenue Service. Quarterly Interest Rates
Current Rates for 2026
Rates have eased from their 2024 highs. Here is where things stand for the first half of 2026:1Internal Revenue Service. Quarterly Interest Rates
Q1 2026 (January Through March)
- Underpayment, individual and corporate: 7%
- Individual overpayment: 7%
- Corporate overpayment: 6%
- Large corporate underpayment: 9%
- Corporate overpayment exceeding $10,000 (GATT rate): 4.5%
Q2 2026 (April Through June)
- Underpayment, individual and corporate: 6%
- Individual overpayment: 6%
- Corporate overpayment: 5%
- Large corporate underpayment: 8%
- Corporate overpayment exceeding $10,000 (GATT rate): 3.5%
For individuals, the rate the IRS charges you and the rate it pays you are always identical. For corporations they diverge, and the gap widens on large balances: a C corporation with more than $100,000 in underpayment for a tax period pays 8% for Q2 2026 while receiving only 3.5% on a matching overpayment. That spread is written into the statute.
How the IRS Sets the Rate
The formula sits in Internal Revenue Code Section 6621. Each quarter, Treasury takes the federal short-term rate for the first month of the previous quarter, rounds it to the nearest whole percent, and adds a fixed margin based on the type of balance.2Office of the Law Revision Counsel. 26 U.S. Code 6621 – Determination of Rate of Interest The short-term rate reflects yields on U.S. government securities maturing in three years or less, so the tax rate rises and falls with broader interest rate conditions.
The margins are:
- Individual underpayments and overpayments: short-term rate plus 3 points
- Corporate underpayments: short-term rate plus 3 points
- Corporate overpayments: short-term rate plus 2 points
- Large corporate underpayments (over $100,000): short-term rate plus 5 points3Office of the Law Revision Counsel. 26 USC 6621 – Determination of Rate of Interest
The IRS publishes each quarter’s rates in a revenue ruling. Q2 2026 appears in Revenue Ruling 2026-5.4Internal Revenue Service. Internal Revenue Bulletin 2026-8
Daily Compounding Changes the Math
Federal tax interest compounds daily. The IRS divides the annual rate by 365 (or 366 in a leap year), adds that day’s interest to your balance, and applies the next day’s interest to the larger number.5eCFR. 26 Code of Federal Regulations 301.6622-1 – Interest Compounded Daily
At 6% annual, daily compounding produces an effective annual rate of about 6.18%. That gap sounds trivial, but on a $20,000 debt left unpaid for two years it adds several hundred dollars over what simple annual interest would produce. Interest also runs on penalties that have already been assessed, not only on the original tax, so the balance grows on more than one front at the same time.6Internal Revenue Service. Interest
When the Clock Starts and Stops
If You Owe
Interest on unpaid tax starts running on the original due date of the return, which for most individuals is April 15. Filing an extension gives you more time to send in paperwork but does not push back the payment deadline.6Internal Revenue Service. Interest File in October under an extension without having paid in April, and you already have six months of compounded interest riding on the balance.7Office of the Law Revision Counsel. 26 USC 6601 – Interest on Underpayment, Nonpayment, or Extensions of Time for Payment, of Tax
The clock stops only when the IRS receives full payment, including accrued penalties and interest. Partial payments cut the principal that future interest is calculated on, so paying what you can still helps, but interest keeps running on whatever remains.
If the IRS Owes You
On overpayments, the government pays you interest from the later of the return’s due date or the date you actually filed. If the IRS processes your refund within 45 days of that date, it owes no interest at all — the statute gives the agency that window for free.8Office of the Law Revision Counsel. 26 USC 6611 – Interest on Overpayments Past 45 days, the interest calculation reaches back to the original overpayment date rather than starting on day 46.
File your return late and no overpayment interest accrues for the period before you actually filed, even though the government was already holding your money.
Estimated Tax Shortfalls
If you owe estimated tax and fall short, the IRS charges what it calls an underpayment penalty. It is calculated using the same quarterly interest rates listed above, applied to how much you underpaid and for how long.9Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
Payment Plans Do Not Stop Interest
Setting up an installment agreement prevents most enforced collection actions, but it does not pause the interest clock. Interest and any applicable penalties continue to compound daily on the unpaid balance until you pay in full.10Internal Revenue Service. Payment Plans; Installment Agreements The longer the plan runs, the more interest piles onto the original debt, which is why paying as much as you can up front almost always saves money.
When Interest Can Be Reduced or Removed
The IRS treats interest as automatic compensation for late money rather than a discretionary penalty, so waivers are rare. A handful of situations qualify.
IRS Errors and Delays
If an unreasonable error or delay by an IRS employee caused or extended the problem — a lost file, a case sent to the wrong office, correspondence sitting untouched — you can request abatement of the interest that accrued during that period, provided you did not contribute to the delay.11Office of the Law Revision Counsel. 26 USC 6404 – Abatements The request goes on Form 843 with a timeline and supporting documents.12Internal Revenue Service. Instructions for Form 843
Late Notices From the IRS
Under IRC Section 6404(g), interest is suspended automatically if the IRS fails to send you a notice of additional tax owed within 36 months of your timely filed return. The suspension covers the period from the end of that 36-month window until 21 days after the notice finally goes out.13Internal Revenue Service. Abatement and Suspension of Underpayment Interest This applies only to individual income tax, not to corporate or employment tax.
Combat Zones and Disaster Areas
Service members in a designated combat zone get interest suspended for the entire period of service plus 180 days after leaving. The same relief covers Red Cross staff and civilians working under military direction in those areas.14Internal Revenue Service. Extension of Deadlines – Combat Zone Service
Taxpayers in federally declared disaster areas get similar postponement of filing, payment, and interest deadlines. Living in the disaster area qualifies you, and so does having your tax records or preparer located there. Anyone affected who lives outside the declared zone can call the IRS Disaster Hotline at 866-562-5227.15Internal Revenue Service. FAQs for Disaster Victims
Interest That Rides on a Penalty
Interest itself is rarely waived, but when you succeed in getting an underlying penalty removed through reasonable cause, first-time abatement, or another relief provision, the interest that accrued on that specific penalty is eliminated with it.
How the Two Sides Are Treated on Your Return
Interest the IRS charges you on unpaid personal income tax counts as personal interest and cannot be deducted.16Internal Revenue Service. Interest, Investment, Money Transactions Interest the IRS pays you on a delayed refund, on the other hand, is taxable income. If it reaches $10 or more in a year you will receive a 1099-INT for it.