On August 15, 2022, the Internal Revenue Service (IRS) announced that they are going to increase the interest rate in the upcoming quarter, which is the fourth quarter and starts on October 1, 2022.
If you would like to learn the details of this increase, keep reading! We have covered every detail for you to learn about the content of this announcement. If you have overpayments and underpayments, your rate will be 6% per year starting from October 1, 2022, until such time as a new rate is announced.
This rate also compounds daily. It is worth noting that the previous rate, which began on July 1, 2022, was 5%. However, the rates mentioned above are for individuals. Here are the new rates for everyone.
- 6% for overpayments for individuals, and 5% for corporations.
- 6% for underpayments, which refers to not fully paid taxes.
- 3.5% of the exceeded balance if the corporate overpayment exceeds $10,000.
- 8% for underpayments owed by large corporations.
The rates are determined for each quarter due to the Internal Revenue Code. The overpayment and underpayment rate for taxpayers (not including corporations) is determined by adding three percentage points to the federal short-term rate.
In general, underpayment and overpayment rates for corporations are determined by adding three percentage points and two percentage points to the federal short-term rate, respectively.
On the other hand, the underpayment rate for large corporations is determined by adding 5 percentage points to the federal short-term rate. In addition, the overpayment rate is determined by adding 0.5 percentage points to the federal short-term rate for taxes exceeding $10,000.
All the new rates mentioned above are calculated according to this procedure by taking the federal short-term rate in July 2022 as a basis. The interest rates will be available in the Internal Revenue Bulletin on August 29, 2022.