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IRS maintains interest rates for Q3 2024

IRS maintains interest rates for Q3 2024

The Internal Revenue Service (IRS) has confirmed that the interest rates for various types of tax-related activities will remain unchanged for the third quarter of 2024, starting July 1.

This decision affects how much interest is calculated on both overpayments and underpayments of taxes.

Interest rates for the 3d quarter of 2024

1. Individuals

The interest rate for overpayments and underpayments by individuals will continue at 8% per annum, compounded daily.

2. Corporations

Different rates apply depending on the situation:

  • 7% for corporate overpayments
  • 8% for corporate underpayments
  • 5.5% for the portion of corporate overpayments exceeding $10,000 - this reduced rate applies to larger refunds owed to corporations
  • 10% for large corporate underpayments, which indicates a higher penalty on significant amounts owed.

How interest rates are determined

Interest rates on tax payments are linked to the federal short-term rate, which is reviewed quarterly.

For most taxpayers, the rates for overpayments and underpayments are set at the federal short-term rate plus three percentage points.

For corporations, the underpayment rate also follows this calculation, but the overpayment rate is slightly lower, set at the federal short-term rate plus two percentage points.

The highest rate, concerning large corporate underpayments, involves an additional five percentage points above the federal short-term rate.

This structure is designed to encourage timely and full payment of taxes due, and to fairly compensate for money held by the government when not required.

Practical implications

The stable interest rates mean that for taxpayers who either owe money to the IRS or are due refunds, the amount of interest calculated will not increase this quarter.

This can affect decisions on when to pay any owed taxes or how to manage receiving overpayments. Businesses, in particular, need to be aware of the different rates that might apply, especially when large sums are involved.

Taxpayers facing or managing underpayments should particularly note the compounded nature of these interest rates, which can significantly increase the amount owed over time.

Looking ahead

These rates, detailed in Revenue Ruling 2024-11, will be officially published in the Internal Revenue Bulletin on June 10, 2024.

It's crucial for both individual taxpayers and corporations to keep abreast of these rulings to manage their financial and tax planning effectively.

For more detailed guidance or case-specific advice, taxpayers should consult with tax professionals or directly with the IRS through their official communications channels.

Ines Zemelman, EA
Founder of TFX