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Precious Metals

IRS Hikes Penalties for Underpayments (and Overpayments)

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The penalty for underpaying your taxes is about to sting a bit more than in the past.

The IRS announced this week that the interest rates it charges for underpayments will rise for the last quarter of 2022 — Oct. 1 through Dec. 31.

The rates the agency pays for overpayments also will rise. In other words, if you pay more in federal income taxes than you owed, the government owes you interest on the excess payment.

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For individuals, the rate for both underpayments and overpayments will rise 1 percentage point from where it is now. That means the rate for the fourth quarter will be 6% per year, compounded daily.

For companies, the rates for the fourth quarter will be as follows:

  • Corporate overpayment: 5% (up from 4% in the third quarter)
  • The portion of a corporate overpayment exceeding $10,000: 3.5% (up from 2.5%)
  • Corporate underpayment: 6% (up from 5%)
  • Large corporate underpayment: 8% (up from 7%)

The IRS adjusts these rates every quarter. Aside from corporations, the rate that is assessed for both overpayments and underpayments is the federal short-term rate plus 3 percentage points.

Meanwhile, for corporations, the overpayment rate is the federal short-term rate plus 2 percentage points. Corporate underpayments garner a higher charge, the federal short-term rate plus 5 percentage points.

For the portion of a corporate overpayment of tax that exceeds $10,000 for a taxable period, the charge is the federal short-term rate plus one-half of a percentage point.

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