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.

 

Do you owe money to the IRS or State?

Get Professional Help Now!

SEARCH

 

Karen Thomas-Brandt, EA
Resource Manager

 

Karen Thomas-Brandt, EA, is a Resource Manager at TaxAudit, the largest and fastest-growing audit defense service in the country and the exclusive provider of TurboTax® Audit Defense. With more than 17 years in the tax field, Karen has prepared thousands of tax returns and defended hundreds of taxpayers in audits. In her current role, Karen specializes in coaching and mentoring tax professionals so that they have the skills to best represent our members and love where they work!


 

Recent Articles

State and Local Taxes
You can deduct certain state and local taxes (SALT) if you choose to itemize deductions on your tax return rather than claiming the standard deduction.
Oil Change
There is a very good chance that you can indeed deduct the cost of your oil changes if you use your car or truck for business purposes. Let's look closer at it.
Wooden House next to Money Bag
In general, only mortgage interest and property taxes are deductible in the transaction year, while some expenses and fees can be added to the cost basis.
Audit Letters
Avoid the temptation to ignore the notice. In most cases, the IRS or a state agency may only need additional information to finish processing your return.
This blog does not provide legal, financial, accounting, or tax advice. The content on this blog is “as is” and carries no warranties. TaxAudit does not warrant or guarantee the accuracy, reliability, and completeness of the content of this blog. Content may become out of date as tax laws change. TaxAudit may, but has no obligation to monitor or respond to comments.