The IRS interest rate on unpaid taxes is 6% per year for the second quarter of 2026, down from 7% in the first quarter. Interest compounds daily and starts running on the original payment due date, which for most individual returns is April 15. That means a balance you leave sitting grows a little every day until you pay it off.
The Current Rate and What It Applies To
From April 1 through June 30, 2026, individual taxpayers who owe the IRS are charged 6% annual interest on the unpaid balance. From January 1 through March 31, 2026, the rate was 7%.1Internal Revenue Service. Quarterly Interest Rates2Internal Revenue Service. Internal Revenue Bulletin: 2026-08
The rate is set by federal law as the federal short-term rate plus 3 percentage points. The short-term rate reflects yields on U.S. Treasury securities maturing in three years or less, and it was 3% for the second quarter of 2026, which produces the 6% figure.3Office of the Law Revision Counsel. 26 USC 6621 Determination of Rate of Interest2Internal Revenue Service. Internal Revenue Bulletin: 2026-08
When the Rate Changes
The IRS updates the interest rate every quarter, on January 1, April 1, July 1, and October 1.1Internal Revenue Service. Quarterly Interest Rates Each quarter’s rate is locked in during the first month of the previous quarter, so the April 1 rate is based on the short-term rate determined in January.4Federal Register. Quarterly IRS Interest Rates Used in Calculating Interest on Overdue Accounts and Refunds of Customs Duties
If a balance sits across more than one quarter, each stretch is charged at whatever rate was in effect at the time. A balance carried from March into April 2026 accrues at 7% through March 31 and at 6% starting April 1.
How Interest Builds on a Balance
Interest compounds daily. Every day, the IRS calculates interest on the entire outstanding balance, including interest that has already been added, so the amount owed grows slightly faster than a flat annual percentage suggests.5Office of the Law Revision Counsel. 26 U.S. Code 6622 – Interest Compounded Daily
Interest starts on the original payment due date, generally April 15 for individuals.6Office of the Law Revision Counsel. 26 U.S. Code 6601 – Interest on Underpayment, Nonpayment, or Extensions of Time for Payment, of Tax Filing an extension gives you more time to submit the return, not more time to pay. If you file in October under an extension but you owed tax on April 15, interest has been running the whole time.7Internal Revenue Service. Interest
Interest also accrues on top of penalties. Once a penalty is assessed against you, interest begins running on the penalty amount itself, which is a big reason unpaid balances can climb quickly.
Estimated Tax Penalty
The estimated tax penalty works a little differently. If you underpaid quarterly estimated taxes, the IRS uses the same underpayment rate (6% in the second quarter of 2026) to calculate the penalty, but it applies simple interest rather than daily compounding.5Office of the Law Revision Counsel. 26 U.S. Code 6622 – Interest Compounded Daily1Internal Revenue Service. Quarterly Interest Rates
Interest Is Not the Same as a Penalty
Two separate charges usually run at the same time on unpaid taxes: interest and the failure-to-pay penalty. Interest is the government’s charge for the time value of money and cannot be waived just because you had a good reason for paying late. The failure-to-pay penalty is a separate punitive charge.
The failure-to-pay penalty is 0.5% of the unpaid tax for each month or partial month the balance remains outstanding, capped at 25% of the unpaid amount.8Internal Revenue Service. Failure to Pay Penalty The rate rises to 1% per month if the IRS issues a notice of intent to levy and the balance still isn’t paid after 10 days.9Internal Revenue Service. Topic No. 653, IRS Notices and Bills, Penalties and Interest Charges
Both charges layer on top of each other. A $10,000 unpaid balance generates 6% annual interest compounded daily and a 0.5% monthly penalty at the same time, and once the penalty is assessed, interest then compounds on that penalty too.
What an Installment Agreement Does
A payment plan does not turn off interest. Daily compounding keeps running on whatever balance remains, for as long as the installment agreement is in effect. What a payment plan does change is the failure-to-pay penalty rate, which drops from 0.5% per month to 0.25% per month while the agreement is active.9Internal Revenue Service. Topic No. 653, IRS Notices and Bills, Penalties and Interest Charges
Because interest keeps compounding, the total cost of a multi-year installment plan can be considerably more than the original tax bill. If you can pay in full, even by borrowing at a lower rate, the math often favors doing that.
Ways to Stop or Reduce Interest
The cleanest way to stop interest is to pay the balance in full. Compounding stops on the day the IRS receives payment.7Internal Revenue Service. Interest Two other tools exist for narrower situations.
Cash Bond Deposit During a Dispute
If you are contesting a proposed tax liability, for example during an audit, you can send the IRS a cash deposit to suspend interest on the disputed amount. The deposit is not a tax payment; it functions more like a bond. If the IRS ultimately determines you owe the tax, the deposit is applied and interest is treated as having stopped on the deposit date. If you win the dispute, you can request the deposit back.10Office of the Law Revision Counsel. 26 U.S. Code 6603 – Deposits Made to Suspend Running of Interest on Potential Underpayments
To use this option, send the deposit to the appropriate IRS office with a written statement identifying the tax type, tax year, and amount of disputable tax. If the deposit is returned, the interest paid on it is calculated at the federal short-term rate alone, without the extra percentage points that normally apply to overpayments.
Abatement for IRS Errors
The IRS can remove interest that accrued because of its own unreasonable error or delay. If an IRS employee made a mistake or was unreasonably slow in performing a routine task, and that caused extra interest to build on your account, you can request abatement of the additional interest.11Office of the Law Revision Counsel. 26 U.S. Code 6404 – Abatements
Two conditions apply: the delay cannot be partly your fault, and the IRS must have already contacted you in writing about the deficiency before the abatement window opens. The request is made on Form 843 (Claim for Refund and Request for Abatement), identifying the tax periods and interest amounts at issue.12Internal Revenue Service. Instructions for Form 843
Is the Interest You Pay Deductible?
No, not for individuals. Federal law classifies interest paid to the IRS on personal income tax underpayments as nondeductible personal interest.13Office of the Law Revision Counsel. 26 USC 163 Interest Corporations can generally deduct underpayment interest as a business expense, but individual taxpayers cannot.