- 2019 Current Interest Rates
- How are IRS Interests Rates Determined?
- Is There a Statute of Limitations on Tax Debt?
- What Other IRS Penalties Can I Face?
- Will the IRS Pay Me Interest?
2019 Current IRS Interest RatesBeginning on January 1, 2019, the most current interests rates will be:
- 6% for overpayments (5% for corporations)
- 3.5% for the portion of a corporate overpayment exceeding $10,000
- 6% for underpayments
- 8% for large corporate underpayments
How are IRS Interests Rates Determined?IRS interest rates are determined every quarter and typically differ between individuals and corporations. For taxpayers, the overpayments and underpayment rates is the federal short-term rate plus three percentage points. For corporations, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. In terms of large corporate underpayments, the rate is the federal short-term rate plus 5 percentage points. What exactly is the federal short-term rate? This percentage is part of the larger Applicable Federal Rate (AFR) that determines the minimum interest rate that the IRS allows for private loans. Every month they release an average of the market yields from marketable obligations, which shows lenders the minimum market rate for interest on loans.
Is There a Statute of Limitations on Tax Debt?When IRS interest rates don’t work in your favor, it’s important to know how long the IRS can hound you for unpaid taxes. The IRS typically has three years from the due date of your return to assess your returns, change you filing, and bring a lawsuit against you. If you understate your income by more than 25%, the length is extended to six years. And if file a fraudulent return, never file a return, or evade paying your taxes, there is no IRS statute of limitations on when they can bring a suit against you. In terms of actual collection, the IRS has about 10 years to collect any remaining tax debt.
What Other IRS Penalties Can I Face?Apart from paying the IRS interest rate on late taxes, you could also be obligated to pay various penalties depending on the extent of your delinquent actions. Penalties and interest charges can quickly add up, so take some time to familiarize yourself with the various financial consequences of not filing your taxes or underpaying the IRS.
Failure to File PenaltyIf you owe the IRS taxes and don’t file your return on time, you may owe a failure to file penalty in addition to any current IRS interest rates. The penalty for filing late is typically larger than the penalty for not paying, and amounts to 5% of the taxes that are late for each month the tax return is late. While the penalty starts accruing the day after the tax filing deadline, it can never exceed 25% of your unpaid taxes.
Late Payment PenaltyEven if you file on time, you could be subject to a late payment penalty if you don’t pay all the taxes that you owe. Generally, this penalty amounts to 0.5% of your unpaid taxes for each month that it’s late. Similar to the failure to file penalty, the percentage increases every month but can never exceed 25% of your owed taxes.
Underpayment PenaltyIf you didn’t pay enough taxes throughout the year, you may have to comply with an underpayment penalty. If you owe less than $1,000 in tax after subtracting withholding and refundable credits, you can usually avoid this penalty. Additionally, if you paid at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year—whichever is smaller—you can won’t have to pay this penalty on top of IRS interest rates.
Overpayment PenaltySometimes, you may overpay on your taxes and give the IRS more than you owe. This mistake is fairly common, and some taxpayers even intentionally overpay in order to prevent themselves from spending too much throughout the year. If you pay too much through income withholding or estimated tax, there is no penalty. You will simply receive a refund on your tax return for the amount you overpaid. Remember, the IRS does not pay interest on overpayments so you will only receive the exact amount that should have remained in your income in the first place.
Penalty AbatementFortunately for taxpayers, there are many instances where you can combat a penalty with a tax abatement. You are allowed to request relief from failing to file on time, pay on time, or deposit taxes under a few different penalty abatements:
- Reasonable Cause: This abatement evaluates whether you took all ordinary measure to comply with tax laws but still failed due to extenuating circumstances. Common causes include natural disasters, serious illnesses, and the inability to obtain records.
- Administrative Waiver and First Time Penalty Abatement: You may qualify for this abatement if you didn’t previously have to file a return or have no penalties for the last 3 tax years, you filed all currently required returns or extensions on time, and you have paid, or arranged to pay, any taxes that are due.
- Statutory Exception: If you received incorrect written information from the IRS, you could qualify for this form of penalty relief.