IRS Underpayment Penalties and Tax Interest Rates

If you did not pay your taxes or underpaid, there will be interest charged on the remaining balance as well as a small underpayment penalty (.5% per month). This interest varies depending on whether you are a corporation, individual taxpayer, and how much you owe. Interest is a penalty in and of itself in addition to the general failure to file penalty (currently 5% percent per month up to 25%).

The IRS (Secretary specifically) typically sets quarterly interest rates a few weeks before the start of a quarter. These interest rates serve to penalize those who do not pay their taxes. Furthermore, the IRS looks at it as if they are giving you a loan in a way because you owe them.

With Interest rates low in the economy currently, the IRS kept interest rates steady for the fourth quarter of 2009 and the 1st quarter of 2010 which begins1/1/2010 and ends 3/31/2009. Section 6621 of the IRS code provides the foundation for interest for underpaying taxes in a taxable period.

Determining an IRS Interest Rate As An Individual Taxpayer

Underpayment interest rates are determined by the federal short term rate (1% currently) plus 3 percentage points for taxpayers. You can find historical federal interest rates at the tax almanac. Therefore, for Q1 2010, as with Q4 2009 the sum total would be 4%.

Determining an IRS Interest Rate As Small Corporate Payment (under 10k)

Generally, with a corporation you take the federal short term rate (currently 1%) plus 2% if the balance total is under 10k. Therefore, for Q1 2010, the interest rate would be 3%. For corporate underpayment interest rates under 10k, explore this link.

Determining IRS Interest Rate for Large Corporation or Payment

Generally, if you are a large corporation, and owe over 10k, you add the short term federal interest rate (currently 1%) and add 5%. As a result, for a large corporation who owes over $10k, the interest rate would be 6%.

If you cannot make payments in full or haven't, still file a tax return. If April 15th is approaching, and you believe you will need more time, request a tax return filing extension (in order to prevent a failure to file penalty). Realize, with a filing extension, you still need to pay what you can, but you will reduce the total amount you owe if you are granted the extension because you avoid any unfiled tax return penalty which is steep (5% per month up to 25% total of tax balance). Moreover, if you cannot pay the full amount you owe in taxes, you can always request an IRS Installment agremeent which will cut the failure to pay penalty by 50%. If you owe money for taxes in the past, or from last year, use the contract form on the right for a free consultation and quote for guidance on your options at no charge and with no obligation to use our services.

Select... $7,500 to $9,999 $10,000 to $14,999 $15,000 to $19,999 $20,000 to $24,999 $25,000 to $29,999 $30,000 to $39,999 $40,000 to $59,999 $60,000 to $79,999 $80,000 to $99,999 $100,000 + Select a state Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Iowa Idaho Illinois Indiana Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Missouri Mississippi Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming