How Much Interest Does the IRS Charge on Unpaid Taxes?

Interest begins to accrue on the outstanding sum when you owe taxes to the IRS and fail to pay them in full by the deadline. Quarterly and depending on the federal short-term rate + 3%, the interest rate is set.

How Interest Works

• Daily compounding by the IRS means the amount due increases marginally every day.
• Interest applies to both outstanding taxes and any penalties you have incurred.

Present IRS Interest Rates

• Every three months, interest rates fluctuate.
• For individuals, the rate is usually about 7-8% yearly as of recent years, but you should consult IRS updates for the most current numbers.

Illustration of Interest Accrual

• Imagine you have $10,000 in delinquent taxes and the yearly interest rate is 7%.
• Daily Interest Rate = 7% / 365 = 0.0192% each day
• $10,000 times 0.0192% equals $1.92 first-day interest.
• Every day, interest keeps compounding, increasing the total debt.

Unpaid Tax Extra Penalties

• Besides interest, the Failure to Pay Penalty increases by 0.5% per month, to a maximum of 25% of the whole tax owed.
• The Failure to File Penalty may be 5% per month, up to 25%, if you have not submitted your return at all.

Ways to Cut Penalties and Interest

Should you have a legitimate cause for missing the deadline, ask for penalty abatement.

To prevent interest from accumulating, pay as soon as you can.

Establish an IRS payment plan to prevent more fines.

This entry was posted on Thursday, April 3rd, 2025 at 10:48 pm and is filed under Tax Related Questions. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.