Interest rates on unpaid taxes are increasing. The rate will go up to 5% for underpaid taxes beginning July 1, 2022 per the Internal Revenue Service. The interest rates are determined on a quarterly basis. The IRS interest rate was a mere 3% on March 31, 2022 then rose to 4% for the second quarter.
The good news is interest paid by the IRS for overpayments will also go up to 5% beginning the third quarter of 2022.
Interest rates are set based on the federal short-term rate plus three percentage points. With rates rising, making a late tax payment will cost you more. In addition, the interest owed for late payment of taxes is not deductible.
Q3 Interest Rates for 2022:
- 5% for overpayments (4% for corporations)
- 5% for the portion of a corporate overpayment exceeding $10,000
- 5% for underpayments
- 7% for large corporate underpayments
Many states follow the federal interest rate, including Arizona. The Arizona Department of Revenue applies interest, compounded annually, in the same manner and at the same time as prescribed by the Internal Revenue Code.
From 3% to 5% in three months. Don’t overlook paying your taxes. If you need help making payments or understanding interest rates on unpaid taxes, contact your Henry+Horne advisor.
Melinda Nelson, CPA