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

The interest rate the IRS charges changes every quarter. For 2024, the rate is 8 percent per year on most unpaid federal income tax. The rate is set by law and tied to the federal short-term interest rate, so it shifts in January, April, July, and October each year. You can find the current rate on the IRS website under "Interest Rates".

Interest starts the day after your tax payment was due — usually April 15 for income tax returns. It compounds daily and keeps growing until you pay the full amount owed. The IRS does not waive interest unless you can show they made an error in their records or caused an unreasonable delay in processing your case, which is rare.

If you owe both taxes and penalties, interest is charged on the penalties too. The penalties themselves (usually 5 to 75 percent of the unpaid tax, depending on the reason) are separate from interest, so your total bill grows faster than the tax alone.

Key Takeaways

  • The IRS interest rate changes quarterly and is currently 8 percent per year, but check the IRS website for the exact rate that applies to your tax year.
  • Interest starts the day after your tax deadline and compounds daily until you pay, so the longer you wait, the more you owe.
  • Interest is charged on penalties as well as on the original tax, making the total debt grow faster than the tax amount alone.
  • You can request a waiver of interest only if the IRS made an error or caused an unreasonable delay, and this is granted in very few cases.
  • Setting up a payment plan with the IRS stops the interest from growing as fast as it would if you ignore the debt.

How the interest rate is set and when it changes

Federal law ties the IRS interest rate to the federal short-term interest rate plus 3 percentage points. The IRS announces the new rate on or before the 15th of each month that starts a new quarter — so mid-December for January, mid-March for April, mid-June for July, and mid-September for October. The new rate takes effect on the first day of the next quarter.

This means the rate you owe depends on when your tax debt started. If you owed taxes in 2023 and still owe in 2024, you may have paid interest at different rates during that time. The IRS tracks which rate applies to which period of your debt.

The rate applies the same way to all taxpayers — individuals, businesses, and estates. There is no lower rate for people with lower incomes or smaller debts.

How much interest you actually owe

The IRS calculates interest daily using this formula: unpaid tax × interest rate ÷ 365 days. So if you owe $5,000 at 8 percent interest, you owe about $1.10 per day. After 30 days, that is roughly $33 in interest. After a year, it is about $400.

The math compounds, meaning interest accrues on interest. If you owe $5,000 plus $400 in interest after one year, the next year's interest is calculated on $5,400, not just the original $5,000. Over time, this makes the debt grow faster and faster.

You can use the IRS Interest Calculator on the IRS website to estimate what you owe on a specific date. You will need the original tax amount, the date it was due, and the date you want to calculate to. The calculator accounts for the different rates that applied during that period.

Interest on payment plans and installment agreements

If you set up a payment plan with the IRS — called an installment agreement — interest still accrues on the unpaid balance. However, the interest rate may be lower than if you simply ignore the debt and let penalties pile up. The reason is that penalties stop growing once you enter a payment plan, so the total bill grows more slowly.

There are three types of payment plans: short-term (120 days or less), long-term (more than 120 days), and streamlined (automatic payments from your bank account). The streamlined plan has a lower setup fee, which saves money, but the interest rate itself does not change based on the plan type.

You can set up a payment plan online through the IRS website, by phone at 1-800-829-1040, or through a tax professional. The sooner you set one up, the less interest you will owe overall.

What happens if you don't pay and interest keeps growing

If you ignore the debt, the IRS will add a failure-to-pay penalty on top of the interest. This penalty is 0.5 percent of the unpaid tax per month, up to 25 percent total. So a $5,000 debt could have a $1,250 penalty added to it, and interest is charged on that penalty too.

The IRS can also file a tax lien against your property, which is a legal claim on your assets. A lien does not take your property, but it damages your credit and makes it hard to sell a house or get a loan. The lien stays on your record until you pay the debt in full or it becomes too old to enforce.

If the debt is large enough and you do not respond to IRS notices, the agency can pursue wage garnishment or bank levy, which means money is taken directly from your paycheck or bank account. These actions happen only after the IRS has sent notices and given you time to respond.

Interest waivers and relief options

The IRS can waive interest only in two situations: if the IRS made an error in calculating your tax or in processing your payment, or if the IRS caused an unreasonable delay in sending you a notice or bill. You must request the waiver in writing and provide evidence of the error or delay. Most requests are denied.

You cannot get a waiver simply because you cannot afford to pay or because you did not know about the debt. Hardship is not a legal reason to remove interest under current law.

If you are in financial hardship, you may be able to pause collection activity through Currently Not Collectible status, which temporarily stops the IRS from taking action. Interest still accrues, but you are not pursued for payment while you are in hardship. This status must be renewed periodically and does not erase the debt.

Frequently Asked Questions

Can I negotiate the interest rate down?

No. The interest rate is set by federal law and is the same for all taxpayers. You cannot negotiate it lower, but you can reduce the total interest you owe by paying the debt faster — either in a lump sum or through a payment plan that lets you pay sooner.

Does interest stop if I file an appeal or dispute with the IRS?

No. Interest continues to accrue while your case is under review, even if you win the dispute. If the IRS later agrees you owe less, they will refund the excess interest you paid, but it does not stop growing while the case is open.

What if I can't pay the full amount right now?

You can set up a payment plan online at IRS.gov, by phone, or through a tax professional. Interest still accrues on the unpaid balance, but penalties stop growing once you have a plan in place. The sooner you set one up, the less total interest you will owe.

Is the interest rate the same for everyone?

Yes. The IRS charges the same interest rate to all taxpayers — individuals, businesses, and estates. The rate does not change based on income, the size of the debt, or your circumstances. It changes only by quarter based on federal short-term interest rates.