The IRS charges interest on any tax you owe but don't pay by the deadline

The federal interest rate the IRS uses changes every quarter. For 2024, the rate is 8% per year for most taxpayers. The rate was 7% in 2023 and 6% in 2022. The IRS sets the rate based on the federal short-term rate plus 3 percentage points, and it shifts on January 1, April 1, July 1, and October 1 each year.

Interest accrues daily from the due date of your return until you pay in full. If you file late and owe tax, interest starts from the original due date, not the date you actually filed. The IRS compounds the interest daily, meaning you pay interest on the interest that has already accumulated.

You will also owe a failure-to-pay penalty on top of interest. This penalty is 0.5% of the unpaid tax per month (or part of a month), up to 25% total. If you have both a failure-to-file penalty and a failure-to-pay penalty, the failure-to-file penalty is reduced by the failure-to-pay penalty, so you don't pay both in full.

Key Takeaways

  • The IRS interest rate changes quarterly and was 8% annually in 2024, but the rate varies by year and quarter.
  • Interest compounds daily from your tax deadline until you pay, even if you file your return late.
  • You owe both interest and a failure-to-pay penalty of 0.5% per month on unpaid tax, up to 25% total.
  • Setting up a payment plan with the IRS does not stop interest and penalties from accruing, but it stops additional penalties from growing as quickly.
  • The longer you wait to pay, the more interest and penalties stack on top of your original tax bill.

How the quarterly interest rate is set

The IRS publishes the interest rate for each quarter in the Federal Register. The rate equals the federal short-term rate (set by the Treasury Department) plus 3 percentage points. Because the federal short-term rate changes, the IRS rate changes too, though not every quarter—it only moves when the Treasury rate moves.

You can find the current and past quarterly rates on the IRS website under "Interest Rates." The rate that applies to your debt is the one in effect during the quarter in which you owe the tax. If you owe tax from April 2024, the rate for that quarter applies, even if rates change later.

When interest starts and how it compounds

Interest begins on the due date of your return, which is usually April 15 for individual income tax returns. It does not matter whether you file on time or late—the clock starts on April 15. If you file an extension, the due date moves to October 15, and interest starts then instead.

The IRS compounds interest daily. This means each day's interest is calculated on your original tax bill plus all the interest that has already accrued. Over months or years, this compounds significantly. For example, $10,000 in unpaid tax at 8% annual interest costs about $22 in interest in the first month, but by month 12, the daily compounding adds up to roughly $830 in total interest.

The failure-to-pay penalty and how it stacks with interest

The failure-to-pay penalty is separate from interest. It is 0.5% of your unpaid tax for each month (or part of a month) that the tax remains unpaid, up to a maximum of 25%. This penalty accrues on top of interest, so your total debt grows from both sources at once.

If you also have a failure-to-file penalty (for filing your return late), the IRS reduces it by the failure-to-pay penalty so you don't pay both in full. However, if you file on time but pay late, you only owe the failure-to-pay penalty and interest, not the failure-to-file penalty.

What happens if you set up a payment plan

Setting up an installment agreement with the IRS does not stop interest and penalties from accruing. You will continue to owe interest at the quarterly rate on your unpaid balance each month. However, the failure-to-pay penalty stops growing once you have an agreement in place, as long as you make your payments on time.

The IRS offers short-term agreements (for balances under $25,000 that you can pay within 180 days) and long-term installment agreements (for larger balances). Both require you to pay a setup fee, which ranges from $31 to $225 depending on how you set up the plan and your income level. The fee is added to your balance.

Reducing or removing interest and penalties

The IRS can remove or reduce penalties in certain situations. If you have a reasonable cause for filing or paying late—such as a serious illness, death in the family, or reliance on a tax professional's bad advice—you can request reasonable cause relief. You must submit Form 843 (Claim for Refund and Request for Abatement) with documentation of your reason.

Interest cannot be removed or reduced by the IRS. It is a statutory charge that accrues by law. However, if the IRS made an error in calculating your tax bill, interest may be recalculated once the error is corrected.

If you believe the IRS made a mistake, you can dispute it through the IRS appeals process or by working with a tax professional. This is separate from requesting penalty relief.

How to find out what you owe in interest and penalties

You can view your account balance and see a breakdown of tax, interest, and penalties on the IRS website using the "View Your Tax Account" tool if you have an IRS online account. You can also call the IRS at 1-800-829-1040 to speak with a representative who can tell you exactly what you owe.

If you receive a bill from the IRS (a notice), it will show your original tax, the interest charged to date, and any penalties. The notice will also show the interest rate being applied and the calculation method. If you disagree with the amount, you have the right to dispute it.

Frequently Asked Questions

Does interest stop accruing if I file an extension?

No. Filing an extension moves your filing deadline to October 15, but if you owe tax, interest starts accruing on the original April 15 deadline. An extension gives you more time to file your return, not more time to pay without interest.

Can the IRS charge interest on penalties?

Yes. The IRS charges interest on the entire unpaid balance, which includes both your original tax and any penalties. This means penalties compound along with the tax.

What if I pay part of what I owe?

Interest continues to accrue on the remaining unpaid balance. The IRS applies your payment first to penalties, then to interest, then to tax. This means if you make a partial payment, you reduce the amount that future interest is calculated on, but you still owe interest on what remains.

Is the IRS interest rate the same for everyone?

The quarterly rate is the same for all individual taxpayers. However, corporations pay a slightly higher rate (the federal short-term rate plus 3 percentage points, same as individuals, but the federal rate itself may differ for corporate debt). The rate you owe depends on when your tax was due, not on your income or circumstances.

What happens to interest if I go into an IRS payment plan?

Interest keeps accruing at the quarterly rate on your unpaid balance. The payment plan does not reduce or stop interest. However, the failure-to-pay penalty stops growing once you have an active agreement, as long as you make on-time payments.