Overpaid or underpaid your taxes? Optima Tax Relief experts walk you through what the latest interest rate update from the IRS means for your tax liability.
When taxpayers fail to pay the full amount of their taxes when they are due, just like on other loans or a line of credit, interest rates are incurred. So how much will you be paying in interest on top of what you already owe? The amount of interest you pay depends on two key factors – how long you have owed a tax liability, and the current IRS interest rate. If you are one of the many taxpayers who came out of this past tax season still owing money to the IRS, Optima Tax Relief is breaking down the latest announcement from the IRS relative to the interest rates on your outstanding debt.
The good news is that based on the recent announcement from the IRS, interest rates will stay stable for the quarter that begins on October 1st, vs. the previous quarter. These interest rates are determined each quarter, and the individual taxpayer overpayment and underpayment rate is always calculated by the federal short-term rate plus 3 percentage points.
And yes, even the IRS is subject to interest rates on money they owe taxpayers. However, this interest only goes into effect if the IRS fails to send your refund within 45 days from the filing deadline for your return. If you file your return before it is due, the IRS still has 45 days from the April 15th deadline. File late? The IRS’s 45-day window begins from the date you filed.
If you need a refresher on what the current interest rates are, and how they vary by type, here is a quick snapshot of the latest rates:
- Overpayment – 5% interest
- Corporate overpayment – 4% interest
- Corporate overpayment greater than $10,000 – 2.5% interest
- Underpayment – 5% interest
- Large corporate underpayment – 7% interest
The latest interest rates were computed from the federal short-term rate determined in July, to take effect August 1, 2019, based on daily compounding.