Last month the Internal Revenue Service (IRS) declared that there is no change in the interest rates and it is the same for the calendar quarter, which starts from July 1, 2018.
IRS Interest Rates
Every year, the Internal Revenue Service announces the interest rates for every quarter of the year. However, few of the taxpayers are not aware of how the interest rates work on their tax payment. What does the interest rate do? When a taxpayer fails to pay the taxes that he/she owes when they are due, in that case, the taxpayer owes interest and penalties on the shortfall.
The amount of interest expense is not constant and it depends on how long the taxpayer owes the money to the IRS. The current IRS interest rate on underpayment of taxes also determines the amount to be paid by the taxpayer.
The Internal Revenue Service publishes the interest rates on overpayment or underpayment for every quarter of the year. The taxpayer can find the interest rates on the IRS site. Generally, for individual taxpayers, the interest rate is the federal short-term rate in addition to 3% points. Then the rate is rounded to the nearest percentage point. Note that the interest rate is the same for all the individual taxpayers.
Apart from the interest rate, the penalties also play a vital part in the tax returns. When an individual taxpayer pays less payment than the actual required amount of the estimated taxes or pays the tax rate, then the taxpayer owes a Failure to pay penalty in addition to the interest.
The IRS abates or forgives a penalty if the taxpayer has a reasonable proof for paying less amount or paying late. Still, the taxpayer must pay the interest he/ she owes to the IRS. The rates for the current third quarter of the year 2018 is as follows
Interest Rates for the Third Quarter of 2018
|No||Condition of Payment||Rate|
|1.||For Overpayment||5 %|
|2.||Overpayment in the case of the corporation||4 %|
|3.||A portion of a corporate overpayment that exceeds $10,000||2.5 %|
|4.||For underpayments||5 %|
|5.||Large corporate underpayment||7 %|
The rate of interest is usually determined on a quarterly basis under the Internal Revenue Code. The overpayment and underpayment rate, which is stated in the above table, is the federal short-term rate in addition to 3 % point for the individual taxpayers except for the corporations.
The interest rate differs based on certain criteria, which is explained as follows. In the case of underpayment rate are federal short-term rate and 3 percentage points for a corporation. Moreover, in the case of an overpayment, the rate is federal short-term and 2 percentage points. The interest rate for underpayment large corporate is federal short-term and 5 percentage points.
The rate on the portion of the corporate, which has an overpayment of tax exceeding the amount of $ 10,000 for a period is federal short-term rate and 0.5 % point. The interest rate announced by the IRS is calculated from the federal short-term rate, which is determined during April 2018 and takes effect May 1, 2018, and they are based on daily compounding.