Interest rates have been rising across the board, so it should come as no surprise that the IRS is getting in on the action. Starting January 1, 2023, late, partial, or missing tax payments will cost more.
On November 29, the IRS announced that rates used to calculate interest on underpayments (taxes owed but not fully paid) and overpayments (refunds) will rise in the first quarter of the new year by a full percentage point across all categories.
Under the Internal Revenue Code, interest rates are decided on quarterly basis and are based on the short-term Federal interest rate from the quarter before, which was 4% as of November 1, 2022. This is the fourth consecutive quarterly rate hike by the IRS since the beginning of this year.
For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. This brings the new rate to 7% per year, compounded daily, for both overpayments and underpayments.
This is up from 6% for the 4th quarter of 2022.
In most cases, the underpayment rate for corporations is the federal short-term rate plus 3 percentage points. This brings the new rate to 7% per year, compounded daily.
The overpayment rate is the federal short-term rate plus 2 percentage points, or 6%. For corporate overpayments in excess of $10,000, the rate is 4.5%, the equivalent to the federal short-term rate plus one-half (0.5) of a percentage point.
The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points, or 9%. “Large” is defined as “any underpayment of a tax by a C corporation for any taxable period if the amount of such underpayment for such period exceeds $100,000.”
How Does This Affect You?
Incomplete or inaccurate tax returns can result in late payments or underpayments, which will now be subject to higher interest in addition to other possible penalties.
To prevent paying more than necessary and to ensure you get the refund you’re entitled to, we urge you to work with one of Tonneson’s qualified CPAs. Whether you’re a business or an individual, our team can determine what you owe, when it’s due and help you avoid paying any more than necessary. Contact us today.