Beginning on Jan. 1, 2023, the rate for overpayments and underpayments will be 7% per year, compounded daily, for individuals, up from 6% in Q4 of 2022.
A list of the new interest rates are as follows:
- 7% for overpayments (payments made in excess of the amount owed), 6% for corporations.
- 4.5% for the portion of a corporate overpayment exceeding $10,000.
- 7% for underpayments (taxes owed but not fully paid).
- 9% for large corporate underpayments.
As stated somewhere in the thousands upon thousands of pages of pure enjoyment and excitement that is the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For individual taxpayers, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. For corporations, the underpayment rate is generally the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.
Got all that? Good. The interest rates announced for the first quarter of 2023 are computed from the federal short-term rate determined during October 2022.
After keeping interest rates for Q1 of 2022 the same as in Q4 of 2021, the IRS raised interest rates from 3% to 4% for underpayments and overpayments in Q2, from 4% to 5% in Q3, and from 5% to 6% in Q4.