Last week, the Internal Revenue Service (IRS) made an announcement that an upcoming increase in interest rates is to be implemented during the first quarter of the new year. The increase will become effective beginning January 1st, 2023.
The IRS charges interest for tax underpayments and pays interest on tax overpayments. This includes tax obligations such as estimated taxes and withholdings. For individuals, the new interest rate for both overpayments and underpayments will be 7% per year, compounded daily. This amount is up 1%, previously 6%, from Q4 of 2022.
For corporations, the new interest rate for 2023 will be updated to 6% for overpayments and 7% for underpayments. For corporate overpayments exceeding $10,000, the overpayment interest rate will be increased to 4.5%. And for large corporate underpayments, the interest rate has been raised to 9%.
IRS interest rates are set during each quarter, based on the federal short-term rate from a prior month. The current change scheduled for January 2023 was based off of the federal short-term rates determined in October 2022.
For taxpayers other than corporations, both the new overpayment and underpayment rate will be based on the federal short-term rate plus three percentage points. Revenue Ruling 2022-23PDF announcing the rates of interest will appear in Internal Revenue Bulletin 2022-51, dated December 19, 2022. For more information, click here to visit the IRS website.
This article is intended only for informative purposes and is not meant to replace counsel from a certified tax professional. At WebsterRogers, our professionals are well versed in the tax challenges that businesses and individuals may encounter and are proactive in providing guidance.
If you are wondering how this may affect you or your business or need assistance in determining the amounts and timing of tax payments, please reach out to a member of our WebsterRogers Tax Consulting & Compliance group.