IRS Interest Rates: What They Owe You vs. What You Owe Them (2024)
I've been researching IRS interest rates recently and wanted to share what I've found for those who might be wondering about this topic. Here's a step-by-step breakdown: 1. **When the IRS owes you money**: Yes, they do pay interest on refunds that are issued more than 45 days after the filing deadline (or the date you filed, if you filed after the deadline). 2. **Current interest rate**: For individuals, the IRS interest rate is currently 7% annually (as of Q1 2024), calculated daily and compounded quarterly. This rate is adjusted quarterly based on the federal short-term rate plus 3%. 3. **When you owe the IRS**: If you owe money to the IRS, they charge interest from the due date of the return until the date of payment. The current rate is also 7% for underpayments. 4. **Penalties vs. Interest**: It's important to distinguish between penalties and interest. Interest is just the time-value of money. Penalties are additional charges for specific actions like filing late (5% per month up to 25%) or paying late (0.5% per month up to 25%). 5. **After an audit**: If you lose an audit and owe additional tax, you'll pay both the interest (calculated from the original due date of the return) AND potentially penalties, depending on the situation. The 8% figure you mentioned might be referring to the combined effect of interest plus penalties. Hope this helps clarify how interest works with the IRS. I've found that understanding these details helps tremendously with tax planning for my home and other investments.
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Sofia Gomez
Thx for this breakdown! I've been waiting on a refund for like 3 months now and was wondering if I'd get any interest. Good to know it's 7% - that's actually better than my savings acct lol. Quick q - does the interest show up separately on the refund or is it just added to the total?
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StormChaser
I appreciate the comprehensive overview, but I'm wondering about your filing status mention. You indicated you're a homeowner in your post, but then asked about being single with no business/home. Are you asking for yourself or researching for someone else? The applicable interest rates and potential penalties can vary based on filing status and situation.
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Dmitry Petrov
This is a good catch. I was confused by that part too.
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Ava Williams
Thanks for pointing that out - I should have been clearer. I'm a homeowner asking for a friend who is single with no business/property. I was trying to understand if the interest rates work differently for different situations - kind of like how insurance rates vary based on what you own. My research indicates the basic interest rate is the same for everyone, but the penalties can vary based on circumstances.
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Miguel Castro
Just went through an audit situation myself and can confirm that interest is separate from penalties. Per Internal Revenue Code Section 6621, the rates are adjusted quarterly. When I needed to speak with an actual IRS agent about my specific situation (which was complicated by multiple years), I used Claimyr (https://youtu.be/_kiP6q8DX5c) to get through after spending days getting busy signals. Got connected to a real agent who explained exactly how my interest was calculated and which portions were penalties vs. interest. Saved me hours of frustration.
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Zainab Ibrahim
Does anyone know if the interest paid to you by the IRS is taxable income? I got a refund last year with interest and wasn't sure if I needed to report it.
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Connor O'Neill
Yes, interest from the IRS is generally considered taxable income. You should have received a Form 1099-INT if the interest was $10 or more, but technically you're supposed to report it even if it's less than that amount. It would typically be reported as interest income on Schedule B, I believe.
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LunarEclipse
THIS IS IMPORTANT! I missed reporting this two years ago and got a CP2000 notice. Had to pay the tax plus additional interest on the unreported amount!
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Yara Khalil
The IRS website has a whole page about this: https://www.irs.gov/taxtopics/tc403. They explain that interest on tax refunds is taxable in the year received. I bookmarked it when I had to deal with this last year.
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Keisha Brown
I just went through this process with a delayed refund. Here's what I learned: • Interest starts accruing after 45 days from filing deadline or when you filed (whichever is later) • For Q1 2024, interest rate is 7% (changes quarterly) • Interest is calculated daily, compounded quarterly • Interest IS taxable income in the year you receive it • The IRS will send Form 1099-INT if interest is $10+ • If you owe the IRS, underpayment interest rate is also 7% currently • Failure-to-pay penalty is 0.5% per month (separate from interest
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Paolo Esposito
Isn't it interesting how they charge us penalties AND interest when we're late, but only pay interest (no bonus) when they're late? Guess that's the power of being the tax authority, right?
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Amina Toure
This is so helpful! I'm expecting a large refund that I filed for on February 1st, 2024. By my calculation, they should start paying interest around April 16th (45 days after the filing). At 7% on my $4,000 refund, that's about $0.76 per day. Not life-changing but definitely better than nothing!
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