IRS Tax Interest Rates for Underpayment and Overpayment

For the second quarter of 2026, the IRS interest rates for underpayment and overpayment are 6% for individuals on both sides, 6% for corporate underpayments, 5% for corporate overpayments, 8% for large corporate underpayments over $100,000, and 3.5% for corporate overpayments above $10,000.1Internal Revenue Service. Quarterly Interest Rates Interest compounds daily and runs from the original payment due date until the balance is paid in full.2Office of the Law Revision Counsel. 26 USC 6622 – Interest Compounded Daily

Q2 2026 Rate Table

The rates in effect April 1 through June 30, 2026 are:1Internal Revenue Service. Quarterly Interest Rates

  • Individual underpayments: 6%
  • Individual overpayments (refunds): 6%
  • Corporate underpayments: 6%
  • Corporate overpayments: 5%
  • Corporate overpayments exceeding $10,000: 3.5%
  • Large corporate underpayments over $100,000: 8%

These rates apply for the full quarter regardless of movement in the bond market. New rates take effect on January 1, April 1, July 1, and October 1, and the IRS announces each quarter’s numbers several weeks ahead through a news release and a formal entry in the Internal Revenue Bulletin.3Internal Revenue Service. Internal Revenue Bulletin 2026-08

How the Rate Is Built

Every quarter’s number starts from the federal short-term rate. The Treasury calculates it from the average market yield on outstanding U.S. government securities with three years or less to maturity, rounded to the nearest whole percent, during the first month of each quarter.4Office of the Law Revision Counsel. 26 U.S. Code 12745Office of the Law Revision Counsel. 26 USC 6621 – Determination of Rate of Interest For Q2 2026, that rate is 3%.

The tax code then adds fixed markups:

  • Non-corporate 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
  • Corporate overpayments over $10,000: short-term rate plus 0.5 points
  • Large corporate underpayments over $100,000: short-term rate plus 5 points

The calculation is mechanical. No IRS employee has discretion to change your rate.5Office of the Law Revision Counsel. 26 USC 6621 – Determination of Rate of Interest Individual filers get the same rate whether they owe or are owed. Corporations don’t: they earn less on refunds than they pay on debts, and the gap widens as the dollar amounts grow.

When Interest Starts and Stops

For an underpayment, interest runs from the original payment due date to the date you pay in full.6Office of the Law Revision Counsel. 26 USC 6601 For most individuals, that clock starts April 15. A filing extension does not move the payment date. An extension gives you until October 15 to file the return, but if you owe money and haven’t paid, interest has been accruing since April.7Internal Revenue Service. Get an Extension to File Your Tax Return

For overpayments, interest generally starts on the later of the return due date or the date you actually filed. But the IRS has a 45-day grace period to process your refund without paying any interest.8Internal Revenue Service. 20.2.4 Overpayment Interest File on time, get the refund inside 45 days, and no interest is added. If processing drags past that window, interest accrues back to the due date. It stops on the date the IRS issues the refund or applies the overpayment to another liability.9Internal Revenue Service. Interest

Daily Compounding

Federal tax interest compounds daily. Each day’s interest is calculated on your original balance plus every prior day’s accumulated interest.2Office of the Law Revision Counsel. 26 USC 6622 – Interest Compounded Daily Because of the compounding, the effective annual cost is slightly above the stated rate. At 6% compounded daily, the effective annual rate works out to roughly 6.18%. The longer a balance sits, the faster the debt grows.

If a balance carries across quarters, the rate resets each time the quarterly figure changes. A debt accruing in January 2026 at 7% dropped to 6% on April 1. Over a multi-year tax debt, those shifts stack up in ways a single quarter’s rate won’t show.

Interest Sits on Top of Penalties

The IRS charges interest on the entire outstanding balance, and that includes any failure-to-file or failure-to-pay penalties assessed against you.9Internal Revenue Service. Interest The IRS cannot remove or reduce interest unless the underlying penalty is itself removed or reduced.10Internal Revenue Service. Failure to Pay Penalty

The penalties have their own math. The failure-to-pay penalty runs 0.5% of unpaid tax per month, capped at 25%; the failure-to-file penalty is typically 5% per month, also capped at 25%.11Internal Revenue Service. Topic No. 653 Under an approved installment agreement, the failure-to-pay penalty drops to 0.25% per month.10Internal Revenue Service. Failure to Pay Penalty Penalties add to the balance, then interest compounds daily on the larger number.

A payment plan doesn’t change any of that. Interest and penalties continue to accrue on the remaining balance for the entire life of the agreement.12Internal Revenue Service. Payment Plans; Installment Agreements The reduced penalty helps, but the interest rate stays at the full quarterly figure.

Interest the IRS Pays You Is Taxable

When the IRS pays interest on a delayed refund, that money is taxable income for the year you receive it. The IRS sends a Form 1099-INT reporting the amount, and you report it on your federal return.13Internal Revenue Service. Topic No. 403, Interest Received The obligation to report the interest applies even if no 1099-INT arrives.

When Interest Can Be Abated

The IRS rarely waives interest, and it has no authority to negotiate the amount down because it feels unfair. Interest is set by statute. A narrow path exists under Section 6404: the IRS can abate interest when an unreasonable error or delay by an IRS employee performing a routine procedural or management task caused the interest to build up.14Office of the Law Revision Counsel. 26 USC 6404 – Abatements Examples include a misplaced file, an examiner going on extended leave without reassignment, or a long delay issuing a deficiency notice after all reviews were done.

The conditions are strict. You cannot have contributed to the delay in any meaningful way, the IRS must have already contacted you in writing about the deficiency, and the interest must relate to income, estate, gift, or certain excise taxes. Employment taxes are excluded.15Internal Revenue Service. Instructions for Form 843 You request abatement on Form 843 with a detailed explanation of the IRS error and the specific interest period at issue. If the request is denied, you have 180 days to challenge the decision in Tax Court.14Office of the Law Revision Counsel. 26 USC 6404 – Abatements

The IRS will also abate interest tied to incorrect written advice it gave you, provided you asked the question in writing and supplied accurate information. Outside those situations, paying the balance down quickly is the only real lever you have.