IRS to Hike Interest Rates for Q1

 

The Internal Revenue Service said Tuesday that it plans to hike interest rates for the first quarter, beginning Jan. 1.

For individuals, the rate for overpayments and underpayments will be 7% per year, compounded daily, up from 6% for the quarter that began on Oct. 1.

Other new rates, announced in Revenue Ruling 2022-23, are:

  • 7% for overpayments (payments made in excess of the amount owed), 6% for corporations;

  • 4.5% for the portion of a corporate overpayment exceeding $10,000;

  • 7% for underpayments (taxes owed but not fully paid); and

  • 9% for large corporate underpayments.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis.

“For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points,” the IRS explained.

Generally, according to the IRS, for a corporation, “the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points,” the IRS said.

The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points.

“The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point,” the IRS states.

The interest rates announced Tuesday, the IRS said, are computed from the federal short-term rate determined during October 2022.