The recent action by the Federal Reserve will impact how much penalties and interest you pay the Internal Revenue Service.
The IRS recently announced that interest rates will increase for the calendar quarter beginning October 1, 2022.
For individuals, the rate for overpayments and underpayments will be 6% per year, compounded daily, up from 5% for the quarter that began on July 1. Here is a complete list of the new rates:
- 6% for underpayments. (taxes owed but not fully paid)
- 6% for overpayments (5% for corporations). (payments made in excess of the amount owed)
- 3.5% for the portion of a corporate overpayment exceeding $10,000.6% for underpayments. (taxes owed but not fully paid)
- 8% for large corporate underpayments.
This means that we may want to rethink the timing of estimated payments to the IRS. Since the rate is compounded daily, the cost of not making estimated payments for the whole year is about 3%. This is a significant increase from previous low rates.