The IRS charges interest on any tax you owe but don't pay by the due date
The federal interest rate changes every three months. For 2024, the IRS charges 8% annual interest on unpaid individual income taxes. This rate is set by law and tied to the Treasury Department's short-term borrowing rate, plus 3 percentage points. The rate you pay depends on which quarter your debt began — so if you owed taxes in January 2024, you pay the rate set for that quarter, even if rates change later.
Interest compounds daily. That means the IRS calculates interest on your original unpaid tax, then adds interest on top of that interest each day. If you owe $5,000 at 8% annual interest, you accumulate roughly $1.10 per day in interest charges. The longer you wait to pay, the faster the total grows. Interest starts the day after your tax return was due — usually April 16 for most filers, or the next business day if April 15 falls on a weekend or holiday. It continues to accrue until you pay in full, even if you're on a payment plan with the IRS.
Key Takeaways
- The IRS interest rate for 2024 is 8% annually and changes every three months based on Treasury rates.
- Interest compounds daily starting the day after your return was due, so the amount owed grows faster the longer you wait.
- You pay interest on unpaid taxes whether or not you set up a payment plan — the plan only spreads out the principal.
- The IRS also charges separate penalties (usually 0.5% per month) on top of interest, so your total debt grows from two sources.
- You can reduce total interest by paying as much as you can immediately, even if you can't pay the full amount owed.
How the IRS calculates interest on your specific debt
The IRS uses a simple formula: unpaid tax × annual interest rate ÷ 365 days × number of days unpaid. If you owe $10,000 and the rate is 8%, you owe roughly $21.92 per month in interest alone. But because interest compounds, the second month's interest is calculated on $10,000 plus the first month's interest.
The IRS sends you a notice (usually Form 1040-ES or a bill) that shows your unpaid tax, the interest charged so far, and any penalties. This notice tells you the exact amount due on a specific date. If you don't pay by that date, more interest accrues. You can request a transcript of your account from the IRS website or by calling 1-800-829-1040 to see the current breakdown of principal, interest, and penalties.
Interest rates by quarter in 2024
| Quarter | Rate | Applies to debt from |
|---|---|---|
| Q1 (Jan–Mar) | 8% | January 1 – March 31, 2024 |
| Q2 (Apr–Jun) | 8% | April 1 – June 30, 2024 |
| Q3 (Jul–Sep) | 8% | July 1 – September 30, 2024 |
| Q4 (Oct–Dec) | 8% | October 1 – December 31, 2024 |
The IRS announces the new rate for each quarter in early November, January, April, and July. The rate applies to interest that accrues during that quarter, not retroactively to older debt. If you owed taxes in 2023 at a different rate, that debt still uses the 2023 rate for interest that accrued then — only new interest uses the current quarter's rate.
Rates in other years vary. The IRS publishes historical rates on its website, and you can look up what rate applied to your specific debt by the quarter it originated. This matters if you're trying to understand an old bill or calculate what you might owe if you don't pay a current balance.
Penalties are separate from interest and add to your total debt
The IRS charges two main penalties on unpaid taxes: the failure-to-pay penalty and the failure-to-file penalty. The failure-to-pay penalty is 0.5% of your unpaid tax per month (or part of a month), up to 25% total. This penalty accrues on top of interest, so you're paying interest on the tax and penalties on the tax separately.
If you filed your return late, you may also owe the failure-to-file penalty, which is 5% per month up to 25%. If both penalties apply, the IRS usually charges the higher one but not both. These penalties stop accruing once you've paid in full or once they reach 25% of your unpaid tax. Example: You owe $5,000 in unpaid tax from April 2024. By October 2024 (six months later), you owe roughly $200 in interest (at 8% annually) and $150 in failure-to-pay penalties (0.5% × 6 months). Your total debt is now $5,350, even though you only owed $5,000 originally.
What happens if you set up a payment plan
A payment plan (called an installment agreement) lets you pay your tax debt over time instead of all at once. The IRS offers short-term plans (120 days or less) and long-term plans (more than 120 days). Interest and penalties continue to accrue on the unpaid balance while you're on the plan — the plan only changes when you pay, not how much you owe.
You may also owe a setup fee for the installment agreement, usually $31 to $225 depending on how you set it up. Online payment plans cost less than phone or mail applications. The IRS can also set up a payment plan automatically if you owe less than $50,000 and meet other conditions. If you stop making payments on your plan, the IRS can cancel it and demand full payment immediately. Interest and penalties continue the whole time, so a long payment plan means you pay significantly more in total than if you paid immediately.
Ways to reduce the interest you owe
Pay as much as you can right away, even if you can't pay the full amount. Every dollar you pay reduces the balance that interest accrues on. If you owe $10,000 and pay $3,000 immediately, you only pay interest on the remaining $7,000 going forward.
You can also request penalty relief from the IRS if you have reasonable cause — for example, a serious illness, death in the family, or reliance on a tax professional's bad advice. Penalty relief removes the penalties but not the interest. Interest is rarely removed unless the IRS made an error in calculating it or you were a victim of tax fraud. If you're in financial hardship, you may be able to request a temporary delay in collection or an offer in compromise (a settlement for less than you owe). These options don't eliminate interest, but they can pause collection efforts while you stabilize your finances.
Frequently Asked Questions
Can the IRS charge interest on penalties?
Yes. The IRS charges interest on both the unpaid tax and the penalties. So if you owe $5,000 in tax and $500 in penalties, interest accrues on the full $5,500. This is why your debt grows faster than the original tax amount alone.
What if I disagree with the interest calculation on my bill?
Request a transcript of your account from the IRS at irs.gov or by calling 1-800-829-1040. The transcript shows exactly how much interest was charged and when. If you believe there's an error, you can file a written protest with the IRS office that issued the bill within 60 days of receiving the notice.
Does the interest rate change if I'm on a payment plan?
No. The interest rate stays the same whether you pay in full immediately or over time. The rate is determined by the quarter in which your debt began and changes only when a new quarter starts. Your payment plan doesn't affect the rate, only the schedule of payments.
Is there a maximum amount of interest the IRS can charge?
There is no cap on interest. It continues to accrue daily until you pay in full. However, penalties do stop at 25% of your unpaid tax. Interest has no limit, so the longer you wait, the more interest you accumulate.
What if I can't pay the interest, only the original tax?
The IRS requires you to pay both the tax and the interest that has accrued. You cannot pay only the principal. However, if you set up a payment plan, you can pay the full amount (tax plus interest plus penalties) over time, and interest continues to accrue on the unpaid balance during the plan.