As inflation and interest rates spiral upward, the Internal Revenue Service is increasing its interest rates for the third quarter of the year.
The IRS said Thursday that interest rates will increase for the calendar quarter starting July 1, 2022. The rates will be:
- 5% for overpayments (4% in the case of a corporation);
- 2.5% for the portion of a corporate overpayment exceeding $10,000;
- 5% for underpayments; and,
- 7% for large corporate underpayments.
The announcement comes as the rate of inflation has reached a 40-year high this year, and the Federal Reserve has been steadily raising interest rates in increments in an effort to bring down inflation while trying to avoid a recession. In contrast, in May 2021, before inflation had become a major problem, the IRS
Under the Tax Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus three percentage points.
Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus three percentage points, and the overpayment rate is the federal short-term rate plus two percentage points. The rate for large corporate underpayments is the federal short-term rate plus five percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half of a percentage point.
The interest rates announced Thursday are figured from the federal short-term rate determined during April 2022 to take effect May 1, 2022, based on daily compounding.
In conjunction with the announcement, the IRS issued
