IRS to raise interest rates for tax overpayments and underpayments
The Internal Revenue Service will raise interest rates on tax underpayments and overpayments beginning July 1, 2025, the agency announced this week.
This change affects individuals and corporations that owe taxes or expect refunds. The IRS adjusts these rates quarterly based on federal short-term interest rates.
What the new rates are
Starting in July:
- Individual overpayments will earn 8% interest per year, compounded daily.
- Corporations will receive 7% on overpayments. However, overpayments over $10,000 will earn 5.5%.
- Underpayments for individuals and corporations will accrue 8% interest.
- For large corporate underpayments, the rate jumps to 10%.
Why this matters
These interest rate changes apply when taxpayers:
- File late returns or pay taxes after the deadline.
- Are owed refunds for overpaid taxes.
If you pay taxes late, you’ll now owe more interest than in the previous quarter. On the other hand, taxpayers waiting on refunds from the IRS may see slightly higher payments.
Background on IRS interest rates
The IRS bases its interest rate adjustments on the federal short-term rate, plus a margin:
- 3% for individuals
- 2% for corporations with large overpayments
- 5% for large corporate underpayments
Because federal interest rates have risen, IRS rates follow suit.
What to do now
Taxpayers who expect to owe taxes may want to pay early to avoid higher interest costs. Meanwhile, those due refunds shouldn’t expect dramatic increases—the interest is small unless the refund is delayed for a long time.
You can find more information in Revenue Ruling 2025-13, which is available at irs.gov.