Is there a benefit to not paying interest on tax penalties later than when they're due?

So I've found myself in a situation where I owe the IRS some money. I've already paid the actual tax amount and the penalties, but I haven't paid the interest yet. Now I'm wondering if there's any real downside to holding off on paying that interest. If I don't pay the interest right away, I understand the IRS might eventually send me to collections. But at that point, couldn't I just contact them and pay what's owed for the interest? What I'm really trying to figure out is: does the IRS charge interest ON the interest that I already owe? Or is there some other penalty for delaying interest payments specifically? Because if not, wouldn't it make financial sense to just pay it later? Am I missing something obvious here? Would love some insight from anyone who knows how this works.

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18 comments

NebulaNova

•8M

The IRS absolutely charges interest on unpaid interest! It's a common misconception that interest is treated differently than the original tax or penalties. The truth is, any unpaid balance with the IRS - whether it's original tax, penalties, OR interest - continues to accrue additional interest until paid in full. Plus, there's another important consideration: once your account goes to collections, it can negatively impact your ability to get loans, affect your credit score, and the IRS may file a Notice of Federal Tax Lien against your property. They can also levy your bank accounts or garnish wages without much warning. The interest rate the IRS charges adjusts quarterly and is generally the federal short-term rate plus 3%. Currently, that's not a small amount - definitely higher than most savings accounts pay.

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NebulaNova

•8M

The IRS typically applies payments in a specific order: first to tax, then to penalties, and finally to interest. Unfortunately, you can't choose to direct your payments to specific portions of your tax debt. If you're struggling with the full amount, a much better approach is to contact the IRS directly and ask about payment plans. They offer several options including installment agreements that allow you to pay over time, and in some hardship cases, they might even consider an Offer in Compromise to settle for less than the full amount owed.

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Paolo Conti

•8M

I was in a similar situation last year and discovered taxr.ai (https://taxr.ai) which honestly saved me so much stress! My situation was complicated because I had partially paid some penalties but was confused about the interest that kept accruing. Their system analyzed my IRS notices and payment history, then showed me exactly what I still owed and how much additional interest was adding up each month. It gave me a clear picture of how much I'd end up paying if I delayed versus paying now.

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Paolo Conti

•8M

You upload your IRS notices and the system scans and interprets them. It doesn't connect directly to the IRS, but it reads the official notices and translates all that confusing IRS language into plain English. It was pretty impressive how it identified which penalties were for what and calculated my total balance including the ongoing interest. The accuracy has been spot-on in my experience. Unlike general tax software that might make calculation errors, this is specifically designed to interpret official IRS documents. It's not doing the tax calculations itself - it's explaining what the IRS has already calculated and helping you understand the timeline and consequences.

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Oliver Schulz

•8M

I was super skeptical about taxr.ai when I first read about it here, but I was desperate because I had 3 different IRS notices with different amounts. I finally tried it last week and it actually cleared everything up! Turns out I had been making payments but they weren't covering the additional interest that kept accumulating. The tool showed me exactly where each payment had gone and why my balance wasn't decreasing as much as I expected. Seriously wished I'd found this sooner instead of playing the "ignore it and hope it goes away" game for months.

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Natasha Kuznetsova

•8M

If you're having trouble reaching the IRS to get answers about your interest situation, I'd recommend Claimyr (https://claimyr.com). I spent WEEKS trying to get through to a human at the IRS about a similar interest question. After trying Claimyr, I got connected to an actual IRS agent in about 20 minutes instead of the usual "all circuits are busy" message and hangup. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent explained exactly how my interest was calculated and confirmed that yes, they do charge interest on unpaid interest! They also helped me set up a payment plan that worked for my situation instead of letting the interest keep piling up.

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Natasha Kuznetsova

•8M

It works by continuously calling the IRS for you and navigating the initial phone tree until it gets a place in the queue, then it alerts you to jump on the call. There's no secret backdoor - they're just using technology to handle the most frustrating part of the process (getting through the initial barriers and endless redials). I was skeptical too! I thought it sounded like a scam at first, but it's just a clever use of automation. Think of it like having a very persistent assistant who keeps redialing for you until they get through. You're still talking directly to the actual IRS - this just helps you get connected instead of hearing "due to high call volume" messages for days.

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Oliver Schulz

•8M

Well I'm eating my words now. After calling the IRS for TWO WEEKS straight and never getting through, I tried that Claimyr service this morning out of desperation. Got connected to an IRS agent in about 15 minutes. The agent confirmed what others here have said - they absolutely DO charge interest on unpaid interest, and my balance had grown by nearly $300 since my last notice because I was ignoring it. They helped me set up a payment plan with automatic withdrawals so I don't have to worry about it anymore. Honestly shocked this worked after all the IRS phone frustration.

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Javier Mendoza

•8M

When you make a payment, you need to clearly indicate which tax period and which liability you're paying. If you're paying online through IRS Direct Pay or EFTPS, there are options to select the specific tax year and type of payment. If you're sending a check, include your name, SSN, tax year, and form number on the check and attach the payment voucher if you have one. If you're dealing with both back taxes and estimated taxes, it's actually best to make two separate payments to avoid confusion.

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Emma Wilson

•8M

I work in accounting (not a CPA though) and see this issue frequently. Beyond what others mentioned about interest on interest, there's also the statute of limitations to consider. Generally, the IRS has 10 years to collect tax debt from the assessment date. BUT - any time you request a payment plan or appeal, that clock stops ticking. And partial payments can sometimes restart the clock in certain situations. So "paying later" might actually extend how long they can come after you.

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