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

The IRS interest rate is a percentage the government adds to your unpaid tax bill each quarter. It is not a penalty — it is the cost of borrowing money from the government. The rate changes every three months based on the federal short-term interest rate, so what you owe in January may differ from what you owe in April.

The current rate is published by the IRS at the start of each quarter. You can find it on the IRS website or ask a tax professional. Interest accrues daily from the due date of your return until you pay in full, and it compounds — meaning you pay interest on the interest.

Interest applies whether you filed late, paid late, or underpaid your taxes. It also applies to penalties, so if the IRS assesses both a penalty and interest, the interest grows on top of the penalty amount.

Key Takeaways

  • The IRS interest rate is set quarterly and is based on the federal short-term interest rate plus 3 percentage points.
  • Interest accrues daily from your tax deadline until you pay, and compounds quarterly.
  • The rate is the same for all taxpayers in a given quarter — it does not depend on your income or credit score.
  • You can find the current rate on the IRS website or by calling the IRS at 1-800-829-1040.

How the IRS calculates the quarterly rate

The IRS publishes a new interest rate at the beginning of each calendar quarter: January, April, July, and October. The rate is the federal short-term interest rate rounded up to the nearest whole percent, plus 3 percentage points.

For example, if the federal short-term rate is 5.25%, the IRS rounds it to 6% and adds 3 points, making the IRS rate 9% for that quarter. The federal rate itself is set by the Treasury Department and reflects what the government pays to borrow money.

Because the federal rate changes, the IRS rate can jump or drop between quarters. A rate that was 8% in January might become 9% in April. This means the amount of interest you owe can increase even if you have not paid anything toward your bill.

When interest starts and how it compounds

Interest begins on the date your tax return was due, not the date you filed it late. If your return was due April 15 and you filed on June 1, interest has been running since April 15. If you filed on time but did not pay, interest still starts on April 15.

The IRS compounds interest quarterly. This means at the end of each quarter, unpaid interest is added to your balance, and the next quarter's interest is calculated on the larger amount. Over time, this makes your debt grow faster than simple interest would.

Interest continues to accrue until you pay your full tax bill in full. Partial payments reduce the balance on which interest is calculated, but do not stop interest from running on what remains unpaid.

Interest on penalties and installment agreements

If the IRS assesses a penalty — such as a failure-to-file penalty or accuracy-related penalty — interest accrues on the penalty amount as well. So your bill includes the original tax, plus the penalty, plus interest on both.

If you set up a payment plan with the IRS, interest continues to accrue on the unpaid balance. The monthly payment you make covers both principal and interest. Longer payment plans mean more total interest paid, because interest keeps running for the entire length of the plan.

Some payment plans, such as an installment agreement, may also include a setup fee. This fee is separate from interest and is charged once when you enter the agreement.

How to find the current IRS interest rate

The IRS publishes the current interest rate on its website at irs.gov. Search for "interest rates" and you will find a page that lists the rate for the current quarter and recent past quarters. The page updates at the start of each quarter.

You can also call the IRS at 1-800-829-1040 and ask for the current interest rate. A representative can tell you the rate and explain how it applies to your specific bill. Tax professionals and tax software also display the current rate.

If you are working with a tax professional or accountant, they can calculate how much interest you will owe by a given date. This helps you understand the cost of delaying payment.

Interest rates for different types of underpayment

The IRS uses the same interest rate for all taxpayers in a given quarter, but the rate can differ slightly depending on whether you are a corporation or an individual. Corporations may pay a higher rate in some cases. The rate also does not change based on how much you owe or how long you have owed it.

If you underpaid your estimated taxes during the year, the IRS may charge interest on the underpayment from the date each payment was due, not from the date your return was due. This can result in a higher total interest charge if you were short on multiple quarterly payments.

What you can do if interest is accruing

The fastest way to stop interest from growing is to pay your full tax bill. Even a large payment reduces the balance on which interest accrues, lowering your total cost.

If you cannot pay in full, you can set up a payment plan with the IRS. An installment agreement lets you pay over time, though interest continues to run. The sooner you pay, the less total interest you will owe.

If you believe the IRS made an error in calculating interest, you can request an abatement — a removal or reduction of the interest charge. This is rare and requires proof of an IRS mistake, not simply hardship. You can request abatement by filing Form 843, Claim for Refund and Request for Abatement.

Frequently Asked Questions

Does the IRS interest rate change monthly?

No. The IRS interest rate is set quarterly and changes only at the start of January, April, July, and October. It remains the same for all three months of that quarter.

Can I deduct IRS interest on my taxes?

Interest paid to the IRS on personal income taxes is not deductible. However, if you owe interest on business taxes or investment-related taxes, you may be able to deduct it. Consult a tax professional about your specific situation.

What is the difference between IRS interest and IRS penalties?

Interest is the cost of owing money to the government. Penalties are separate charges for specific violations, such as filing late or underpaying. Both can apply to the same bill, and interest accrues on the penalty amount as well.

How much interest will I owe if I set up a payment plan?

Interest continues to accrue for the entire length of your payment plan. The longer the plan, the more interest you will pay. Your monthly payment covers both the principal and the accruing interest. A tax professional can calculate your total cost for a specific plan length.

Is there a maximum interest rate the IRS can charge?

No. The IRS interest rate has no legal cap. It is set by formula each quarter and can rise or fall based on the federal short-term rate. There is no upper limit on how high it can go.