IRS just announced they're dropping interest rates for Q1 2025 - anyone else see this?

Wait, so the IRS actually pays us interest if they're late with our refunds? I had no idea! How long do they have to process refunds before they start paying interest? And does this happen automatically or do we need to request it somehow?

Yes, the IRS does pay interest on late refunds, and it happens automatically - you don't need to request it. They have 45 days after the filing deadline (or from when you actually filed if you filed late) to process your refund without owing interest. After that period, they'll add interest for each day they're late. The interest starts accruing from the original due date of the return or the date you filed, whichever is later. The interest is taxable, though, so you'll need to report it as income on next year's return. It will typically be reported to you on a 1099-INT if it's over $10.

Does it actually calculate the exact interest amount you'd owe? My situation is complicated because I've been on a payment plan for 2023 taxes and I'm wondering if this new rate automatically applies to existing payment plans or just new ones.

I'm a bit skeptical about these tax tools. How accurate is it really? I've tried other tax calculators before and they always seem to miss something specific about my situation that ends up making a big difference.

Yes, it calculates the exact interest based on your specific situation including payment dates, amounts, and applicable rates. It even factors in rate changes over time, so you get a precise calculation of what you'll owe with the decreasing rate. The new rate automatically applies to existing payment plans as well as new ones. The interest rate changes are applied quarterly, so any outstanding balance will be charged interest at the new rate starting January 1st, regardless of when you set up your payment plan.

Wait, you're saying there's actually a way to get through to the IRS without waiting on hold for eternity? How does that even work? I've literally tried calling them 6 times about interest on my back taxes and never got through.

This sounds too good to be true. You're telling me this service somehow magically bypasses the IRS phone queue that millions of people are stuck in? I've spent literal days of my life on hold with the IRS and now there's supposedly a way around it? I'm calling BS on this.

It works by using their system to navigate the IRS phone tree and wait on hold for you. When they reach an actual human agent, they call you and connect you directly. It saved me hours of frustration and listening to that awful hold music. I was skeptical too until I tried it. I don't know exactly how they do it, but my theory is they have multiple lines calling simultaneously to increase the chances of getting through. All I know is that I wasted 3+ hours trying on my own with no success, and they had me talking to an IRS representative in about 20 minutes.

Interesting! Do you know how this compares to standard credit card or loan interest rates? Is the IRS charging more or less than what a typical bank would charge for late payments?

The IRS interest rate of 7% is significantly lower than most credit card interest rates, which typically range from 18-25% or even higher. It's also generally lower than personal loan rates, which average around 11-15% for most borrowers. This is actually why some financial advisors suggest that if you're facing both credit card debt and tax debt, it might make more sense to pay off the higher-interest credit cards first while setting up a payment plan with the IRS. However, keep in mind that while IRS interest rates are lower, they can also impose additional penalties beyond just interest, which can make the effective rate higher in some cases.

The failure-to-pay penalty is separate from interest and stays at 0.5% per month (up to 25% of the unpaid tax). This rate doesn't change quarterly like the interest rate does. So while your interest will be lower with this change, the penalty percentage stays the same if you can't pay on time. One tip though: If you set up an installment agreement with the IRS, that penalty rate gets cut in half to 0.25% per month instead of 0.5%. Definitely worth doing if you know you can't pay in full by the deadline.

Thanks for explaining! So basically I'll still get hit with the same penalties, but at least the interest portion will be slightly lower. I'll definitely look into setting up an installment agreement this time to get that penalty reduction. Every bit helps when you're trying to dig out of a tax hole.