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

Grandmother driving Grandchild
My wife drives to transport our granddaughter to our house to watch for the day. Is this to-and-from mileage deductible as a job-related expense?
Net Operating Loss
When you prepare your federal income tax return, your business may incurre a loss. Here are the tax implications if you have suffered a net operating loss.
Man hitting button to enter parking structure
As a self-employed taxpayer, you can deduct your business-related parking fees as an expense on Schedule C, Profit and Loss from Business.
Capital Gains
I had investment capital losses of over 17,000 dollars, yet my Schedule D is only allowing a $3,000 loss. Can I take the additional losses in future tax years?
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.