IRS Interest Rates for Underpayments and Overpayments

For the first quarter of 2026, the IRS interest rates for underpayments and overpayments by individual taxpayers are both 7% per year, compounded daily. Starting April 1, 2026, both rates drop to 6%.¹² These rates reset every calendar quarter, so a balance carried across several quarters will accrue at whatever rate is in effect for each stretch of time.

Current Rates by Taxpayer Type

Corporations pay the same underpayment rate as individuals: 7% in Q1 2026, 6% in Q2. They earn less on refunds, though. A standard corporate overpayment earns 6% in Q1 and 5% in Q2. For the portion of a corporate overpayment above $10,000, the rate falls further to 4.5% in Q1 and 3.5% in Q2. Large corporate underpayments over $100,000 face a steeper 9% in Q1 and 8% in Q2.³

How the IRS Calculates the Rate

Every IRS interest rate begins with the federal short-term rate, which reflects the average market yield on U.S. Treasury securities with three years or less until maturity.⁴ The IRS then adds a fixed margin depending on who owes the money:

Individual underpayments: short-term rate plus 3 percentage points
Individual overpayments: short-term rate plus 3 percentage points
Corporate overpayments: short-term rate plus 2 percentage points, dropping to plus 0.5 for the portion above $10,000
Large corporate underpayments (C corporations, above $100,000): short-term rate plus 5 percentage points

Because the formula is fixed by statute, tax interest tracks broader borrowing costs.⁵ When Treasury yields rise, IRS rates rise; when yields fall, IRS rates fall.

Quarterly Resets and Recent History

The IRS looks at the federal short-term rate during the first month of each quarter and uses that figure to set the rate for the following quarter. So the rate observed in January drives the rate that takes effect April 1. Upcoming rates get announced in a Revenue Ruling roughly a month before the new quarter starts.³

Individual underpayment interest sat at just 3% through all of 2021 and into early 2022, climbed to 7% by mid-2023, hit 8% throughout 2024, and has since settled back to 7% for 2025 and 6% for Q2 2026.³ Anyone carrying a multi-year tax debt has been charged materially different amounts depending on when the balance sat there.

When Underpayment Interest Starts Running

Interest on an unpaid tax balance starts on the original due date of the return, not the date you filed and not the date the IRS sent a notice. A filing extension does not stop it. The statute sets the payment deadline without regard to any extension of time.⁶ For most individuals, interest on a 2025 balance begins April 15, 2026, even with an automatic extension to file in October.

Interest and the failure-to-pay penalty are separate charges that feed on each other. The failure-to-pay penalty is generally 0.5% of the unpaid tax each month, up to 25%, and interest is calculated on the whole unpaid balance, including any assessed penalties.⁷ The IRS cannot reduce interest on its own; interest can only come down if the underlying penalty is reduced or removed first.

Estimated tax underpayments use the same rate. The charge for missing a quarterly estimated payment is calculated by applying the underpayment rate (short-term rate plus 3 points) to the shortfall between each quarterly due date and either the next payment or April 15 of the following year, whichever comes first.⁸ The IRS calls it a penalty, but the math is straight interest.

Daily Compounding

All IRS interest compounds daily.⁹ Each day’s interest is added to the running balance, and the next day’s interest is computed on that slightly larger number. Over a few months, daily compounding barely differs from simple interest. Over years, it does. A $10,000 tax debt at 7% compounded daily grows to about $14,190 after five years, roughly $690 more than under simple interest. Every day carrying a balance costs money, and a partial payment stops the clock on the portion paid.

When the IRS Owes You Interest

The IRS pays interest on refunds it holds too long. For individuals, the overpayment rate matches the underpayment rate: short-term rate plus 3 percentage points.⁵ Interest runs from the date of the overpayment (often the return’s original due date, or the date tax was withheld) through a date shortly before the refund is issued.¹⁰

The IRS gets a 45-day grace period. If your refund is issued within 45 days after the filing deadline (or within 45 days of when you actually filed, if you filed late), no interest is owed to you at all.¹⁰ Most refunds go out inside that window. When processing drags past it, interest accrues from the later of the return’s due date or the filing date.¹¹

Tax Treatment of the Interest

Interest the IRS pays you on a delayed refund is taxable income for the year you receive it. If it’s $10 or more, the Treasury sends a Form 1099-INT, but the interest is taxable whether or not the form arrives.¹²

Interest you pay the IRS on a personal income tax debt is not deductible. The code treats it as personal interest, and none of the exceptions (mortgage, investment, student loan, business) reach it.¹³ The result is asymmetric: taxable when you receive it, nondeductible when you pay it.

Getting Interest Reduced

The IRS can abate interest in limited situations, and the bar is high. The main ground is an unreasonable error or delay by an IRS employee handling your case. If the agency lost a file, sat on the matter for months, or made a processing mistake that caused interest to pile up, you can request abatement of the interest tied to that delay.¹⁴

Two limits matter. You cannot have caused any significant part of the delay yourself. And abatement covers only taxes that require a notice of deficiency (mainly income, estate, and gift taxes), not employment taxes. You request abatement by filing Form 843 with an explanation of the delay, the period affected, and why charging interest would be grossly unfair.¹⁵

Taxpayers in federally declared disaster areas or serving in combat zones may qualify for automatic postponement of tax deadlines, which suspends interest during the postponement period. The IRS can grant up to one year of relief, with a mandatory minimum of 60 days in most disaster declarations.

When You Owe and Are Owed at the Same Time

If you have an underpayment for one year and an overpayment for another, the law can wipe out the interest differential. For any period where interest is being charged to you on an underpayment and simultaneously owed to you on an overpayment of the same type of tax, the net interest rate is zero.⁵ In practice, this often needs to be raised with the IRS; it does not always happen on its own.

1
Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026
2
Internal Revenue Service. Revenue Ruling 2026-5
3
Internal Revenue Service. Quarterly Interest Rates
4
Office of the Law Revision Counsel. 26 USC 1274 – Determination of Issue Price in the Case of Certain Debt Instruments Issued for Property
5
Office of the Law Revision Counsel. 26 USC 6621 – Determination of Rate of Interest
6
Office of the Law Revision Counsel. 26 USC 6601 – Interest on Underpayment, Nonpayment, or Extensions of Time for Payment, of Tax
7
Internal Revenue Service. Failure to Pay Penalty
8
Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual to Pay Estimated Income Tax
9
Office of the Law Revision Counsel. 26 USC 6622 – Interest Compounded Daily
10
Office of the Law Revision Counsel. 26 USC 6611 – Interest on Overpayments
11
Internal Revenue Service. Internal Revenue Manual 20.2.4 – Overpayment Interest
12
Internal Revenue Service. Topic No. 403, Interest Received
13
Office of the Law Revision Counsel. 26 USC 163 – Interest
14
Office of the Law Revision Counsel. 26 USC 6404 – Abatements
15
Internal Revenue Service. Instructions for Form 843