How to Calculate IRS Interest on Unpaid Taxes

To calculate IRS interest on unpaid taxes, start with your unpaid balance on the return’s due date, divide the quarter’s annual interest rate by 365 to get a daily rate, and compound that daily rate on the running balance each day until you pay. When the calendar crosses into a new quarter, switch to the new rate and keep compounding. For the first quarter of 2026 the individual underpayment rate is 7 percent; for the second quarter beginning April 1, 2026, it drops to 6 percent.¹²

When the Interest Clock Starts

Interest begins on the original due date of the return, which for most individual filers is April 15. An extension to file is not an extension to pay. If you owe on April 15 and don’t send the money, interest starts running that day whether or not you filed an extension.³

The clock stops only when the balance, including accrued interest, is paid in full. There is no cap on how long it can run.⁴

The Rate Changes Every Quarter

The underpayment rate is not fixed. It resets on January 1, April 1, July 1, and October 1 based on the federal short-term rate plus three percentage points for individuals.⁵ The IRS announces each new rate near the end of the prior quarter through a Revenue Ruling and posts current and historical rates on its quarterly interest rates page.⁶

For 2026, the announced rates are:

If your balance spans more than one quarter, each quarter’s rate applies only to the days inside that quarter. A later rate change does not reach back and adjust interest that already accrued.

The Four-Step Calculation

Federal law requires that underpayment interest compound daily, so each day’s interest is added to the balance before the next day’s interest is figured.⁷ The regulation specifies dividing the annual rate by 365 (or 366 in a leap year) to get the daily rate.⁸

Identify the unpaid balance. Take the tax you owe after subtracting all credits, withholding, and timely payments. This figure appears on line 37 of Form 1040 or in the “Amount You Owe” section of an IRS notice such as a CP14.
Find the daily rate. Divide the annual rate for the quarter by 365. At 7 percent, that’s 0.07 ÷ 365 = 0.00019178. At 6 percent, it’s 0.06 ÷ 365 = 0.00016438.
Compound daily. Multiply the outstanding balance by the daily rate, add that day’s interest to the balance, and repeat for each day of the quarter.
Reset each quarter. On the first day of a new quarter, recalculate the daily rate using the newly announced annual rate, then apply it to the running balance (original tax plus all interest that has already compounded).

A Worked Example

Assume you owe $10,000 on April 15, 2026, and pay in full on July 15, 2026. The period spans two quarters.

From April 15 through June 30, that’s 77 days at the Q2 rate of 6 percent. The daily factor is 1.00016438. After 77 days of compounding, the balance is roughly $10,126.90.

From July 1 through July 15, a new quarterly rate applies. If Q3 has not yet been announced, use the most recent known rate as an estimate. Assuming it stays at 6 percent, another 15 days of compounding brings the balance to about $10,136.82. Total interest: roughly $136.82.

A partial payment mid-period changes the math. If you send $5,000 on May 15, daily compounding from that date forward runs only on the reduced balance. Earlier payments always save more than the same payment made later.

Interest Also Compounds on Penalties

Interest applies to more than just the tax. The IRS charges interest on assessed penalties too. The failure-to-pay penalty is 0.5 percent of the unpaid tax for each month or partial month the balance remains outstanding, capped at 25 percent of the unpaid tax.⁹ If you have penalties on the account, your interest calculation base should include them, not just the tax.

How Partial Payments Are Applied

When you send less than the full balance, the IRS applies the payment first to tax, then to penalties, and then to interest.¹⁰ This order matters for your calculation: reducing the tax portion first shrinks the base that daily interest compounds on going forward.

Interest also keeps running during an installment agreement. The failure-to-pay penalty drops from 0.5 percent to 0.25 percent per month while an approved payment plan is in effect, but the interest rate itself is not reduced or paused.¹¹

What to Gather Before You Calculate

Your unpaid tax amount. Pull it from your filed Form 1040 or from an IRS notice such as CP14 or CP501. That assessed figure is your starting principal.
The original due date. For most individual returns, April 15 of the filing year. If April 15 fell on a weekend or holiday, use the adjusted business-day deadline.
Your payment date, or the date you plan to pay. The number of days between the due date and the payment date drives how long interest compounds.
Each quarter’s rate for the entire period the balance was outstanding. The IRS lists current and historical rates at irs.gov/payments/quarterly-interest-rates.⁶
Records of any partial payments. Bank statements, cancelled checks, or an IRS account transcript showing dates and amounts. Each payment reduces the balance for future compounding.

An IRS account transcript, which you can request for free, confirms the assessed tax, any posted payments, and the balance the IRS is compounding against. Comparing it to your own records is the fastest way to catch a discrepancy before you dispute anything.

When Interest Can Be Reduced

Unlike penalties, interest is almost never forgiven. The law treats it as compensation for the time value of money, not a penalty for bad behavior. One narrow exception exists: the IRS can abate interest caused by its own unreasonable error or delay in performing a ministerial or managerial act, provided you did not contribute to the problem in any significant way. A ministerial act is a routine procedural step that involves no legal judgment; a managerial act involves administrative decisions about personnel or case processing. Disagreements about how the tax law applies do not qualify.¹²

You request abatement on Form 843, identifying the tax periods, describing the IRS error or delay, and explaining why charging interest would be grossly unfair. Abatement is available only for taxes that require a notice of deficiency, primarily income, estate, gift, and certain excise taxes. Interest on employment taxes cannot be abated through this process.¹²

1
Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026
2
Internal Revenue Service. Internal Revenue Bulletin 2026-08
3
Office of the Law Revision Counsel. 26 U.S.C. 6601 – Interest on Underpayment, Nonpayment, or Extensions of Time for Payment of Tax
4
Internal Revenue Service. Interest
5
Office of the Law Revision Counsel. 26 U.S.C. 6621 – Determination of Rate of Interest
6
Internal Revenue Service. Quarterly Interest Rates
7
Office of the Law Revision Counsel. 26 U.S.C. 6622 – Interest Compounded Daily
8
eCFR. 26 CFR 301.6622-1 – Interest Compounded Daily
9
Internal Revenue Service. Failure to Pay Penalty
10
Internal Revenue Service. Topic No. 653, IRS Notices and Bills, Penalties and Interest Charges
11
Internal Revenue Service. People First Initiative FAQs – Installment Agreements/Payment Plans
12
Internal Revenue Service. Instructions for Form 843