IRS Hikes Penalties for Underpaying Taxes in 2023

Well, the IRS hasn’t hired those 87-thousand new agents approved by Congress last year. But even without them, the cost of underpaying your taxes just got more expensive. The interest rate charged for not paying your taxes on time has gone up.

As of January 1, 2023, the underpayment interest rate for individuals was raised to an annual rate of 7% compounded daily. That’s up 1% from last year. But that rate is only guaranteed for the first quarter of 2023. The IRS adjusts the interest rates quarterly. The underpayment rate is

the federal short-term rate plus 3 percentage points.

For corporations, the rates will be:

·       Corporate underpayment: 7%, up from 6% last year

·       Large corporate underpayment: 9%, up from 8%

Generally, the underpayment rate for corporations is the federal short-term rate plus 3 percentage points. Large corporations that underpay their taxes are assessed a higher rate—the federal short-term rate plus 5 percentage points.

If individuals and corporations overpay their taxes, those rates have also been adjusted. (Yes, if you pay more in federal income taxes than you owe, the government owes you interest on the excess.)

For individuals, the rate for overpayments is the same as underpayments, 7% up from 6%.

Corporate overpayment: 6%, up from 5%. The portion of a corporate overpayment exceeding $10,000: 4.5%, up from 3.5.