The Internal Revenue Service announced on Feb. 23 that interest rates will increase for the calendar quarter beginning April 1, 2022. The rate of interest is determined on a quarterly basis and is based on the federal short-term rate, rounded to the nearest full percent, determined during Jan. 2022 to take effect Feb. 1, 2022, based on daily compounding.
Here are the rates:
- 4% for overpayments (3% for corporations);
- 1.5% for the portion of a corporate overpayment exceeding $10,000;
- 4% for underpayments; and
- 6% for large corporate underpayments.
For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. For corporations, 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.
For large corporations, the underpayment rate is the federal short-term rate plus 5 percentage points and the overpayment rate of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half of a percentage point.
Underpayment interest applies when you don’t pay tax, penalties, additions to tax or interest by the due date. If you pay more tax than you owe, the IRS pays interest on the overpayment amount.
The IRS applies interest on underpayment starting on the due date of the amount you owe. According to the IRS, tax is due on the return due date, even if you file an extension. Penalties and additions to the tax due dates vary by penalty type and interest is due as it accrues.
Interest on the amount you overpay begins from whichever is later:
- The tax return filing due date.
- Late filed tax return received date.
- The date the IRS receives your return in a format that can be processed.
- The date the payment was made.
The IRS stops paying interest on overpayments on the date the IRS refunds your overpayment (and interest) or offsets it to an outstanding liability. The IRS also has time, typically 45 days, to issue your refund without paying interest.
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