The penalty for underpaying your taxes is about to sting a bit more than in the past.
The IRS announced Nov. 29 that the interest rates it charges for underpayments will rise for the first quarter of 2023, Jan. 1-March 31.
The rates the federal agency pays for overpayments also will rise. (Yes, if you pay more in federal income taxes than you owed, the government owes you interest on the excess.)
For individuals, the rate for both underpayments and overpayments will rise 1 percentage point from where it is now. That means the rate for next quarter will be 7% per year, compounded daily.
For corporations, the rates will be as follows:
- Corporate underpayment: 7% (up from 6% this quarter)
- Large corporate underpayment: 9% (up from 8%)
- Corporate overpayment: 6% (up from 5%)
- The portion of a corporate overpayment exceeding $10,000: 4.5% (up from 3.5%)
The IRS adjusts these rates every quarter.
For individuals, the interest rate that is assessed for both underpayments and overpayments is the federal short-term rate plus 3 percentage points.
Generally, for corporations, the underpayment rate is the federal short-term rate plus 3 percentage points, while the overpayment rate is the federal short-term rate plus 2 percentage points.
Large corporate underpayments garner a higher charge, the federal short-term rate plus 5 percentage points.
For the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period, the charge is the federal short-term rate plus one-half of a percentage point.