If I owe back taxes to the IRS, what is the interest rate that they charge?

August 10, 2020 by Karen Thomas-Brandt, EA
Percentage sign with dollar bill in the background

The interest rate charged by the IRS on back taxes is the federal short-term rate plus 3%. The rate is set every 3 months. Keep in mind that if you owe back taxes for several years, you may have different rates applied to the balance due over different time periods.

For example, say you owe $14,368 in back taxes on your 2018 tax return, which was due on April 15, 2019. On top of this, the IRS is assessing a $2,873.60 accuracy related penalty (which is a penalty for underpayment of federal taxes due to certain specified taxpayer behaviors, such as negligence or understatement of income tax), for a total amount due of $17,241.60. Your interest calculation schedule would look like the following (with interest computed to August 8, 2020).

 


Effective Dates Days Rate Interest
4/15/2019 – 6/30/2019 76 6% $216.74
07/01/2019 – 12/31/2019 184 5% $445.61
1/1/2020 – 6/30/2020 182 5% $450.70
7/1/2020 – 8/14/2020 45 3% $67.82

 

Total Interest: $1,180.87


 

Please note that interest is compounded daily, so a taxpayer is essentially paying interest on already assessed interest until the balance due is paid in full.

If you owe back taxes to the IRS and want to review all tax debt relief solutions, please visit our website at https://www.taxaudit.com/tax-debt-relief-assistance for more information. Our experienced tax professionals will help you figure out the best IRS tax debt settlement option for you.

 

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