The IRS announced an interest rate increase for the first quarter of 2023, starting January 1st. The IRS charges interest for tax underpayments and pays interest on tax overpayments. This includes tax obligations such as estimated taxes and withholdings.
For individuals, the interest rate for overpayments and underpayments will be 7% per year, compounded daily. This is up from 6% for Q4 of 2022.
For corporations, the interest rate will be 6% for overpayments and 7% for underpayments. For corporate overpayments exceeding $10,000, the overpayment interest rate will be 4.5%. And for large corporate underpayments, the interest rate has been increased to 9%.
IRS interest rates are set quarterly based on the federal short-term rate from an earlier month. The current change for Q1 2023 was based on the federal short-term rates from October 2022.
If you need help in determining the amounts and timing of tax payments for you or your company, please contact our office.