Underpaying Your Taxes Just Got More Expensive

The IRS wants its tax money and it wants it now. Even if you pay all the taxes you owe when you file your tax return for the year, you’ll be charged an underpayment penalty if you didn’t pay enough taxes during the year.

The provision to hire 87,000 new IRS agents in the recently signed Inflation Reduction Act is part of the plan to catch people who don’t pay their taxes on time. But the federal tax collection agency is tightening the noose even before the first new agent is hired.

Beginning October 1, 2022, the IRS is raising the underpayment rate for individuals by 1% to a new annual rate of 6% compounded daily.

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

  • Corporate underpayment: 6% (up from5% this quarter)
  • Large corporate underpayment: 8% (up from 7%)
  • Corporate overpayment: 5% (up from 4%)
  • The portion of a corporate overpayment exceeding $10,000: 3.5% (up from 2.5%)

 

The IRS adjusts these rates quarterly. For individuals and corporations, the underpayment rate is the federal short-term rate plus 3 percentage points. Large corporations are charged the federal short-term rate plus 5 percentage points.

In the event you paid too much and the IRS owes you money, and in the event the IRS has to pay you interest because they didn’t get your refund to you in time, the overpayment interest rate is going up too. Just like the underpayment rate, the new overpayment rate for individuals is going up 1% to an annual rate of 6%. Here are the IRS regulations about paying you interest.

 

In general, we pay interest on the amount you overpay starting from the later of the:

  • Tax return filing due date
  • Late filed tax return received date
  • Date we get your return in a format we can process
  • Date the payment was made

We stop paying interest on overpayments on the date we refund your overpayment (and interest) or offset it to an outstanding liability.

 

Exception: We have administrative time (typically 45 days) to issue your refund without paying interest on it.

 

There’s nothing in the IRS document that states whether the interest you’re due is compounded daily.

Hot this week

Beneficiary Audit

Do you want your ex-spouse to get your money...

What Medicare Will Cost You in 2025

We’re in the fourth quarter of the year and...

2024 Year End Financial Moves to Make Right Now

It seems like we just rang in the new...

Charitable Giving Strategies You Can Still Use In 2024

It’s near the end of the year and you’re...

2024 Standard Deduction and Tax Rate

It won’t be long before you’ll be fussin’ and...

Topics

Beneficiary Audit

Do you want your ex-spouse to get your money...

What Medicare Will Cost You in 2025

We’re in the fourth quarter of the year and...

2024 Year End Financial Moves to Make Right Now

It seems like we just rang in the new...

Charitable Giving Strategies You Can Still Use In 2024

It’s near the end of the year and you’re...

2024 Standard Deduction and Tax Rate

It won’t be long before you’ll be fussin’ and...

Social Security Tax Limit for 2025

You’re doing your year-end financial review and trying to...

Medicare Open Enrollment 2024

Yep, it’s that time of year again, Medicare Open...

2025 Social Security Cost of Living Adjustment

Pundits spend months predicting how much the Social Security...
spot_img

Related Articles

Popular Categories

spot_imgspot_img