With inflation at nearly a 40-year high, the Internal Revenue Service said Tuesday that interest rates will increase for the calendar quarter starting Jan. 1, 2023.
For individuals, the rate for overpayments and underpayments will be 7% per year, compounded daily, up from 6% for the quarter that started Oct 1. Other items on the list of new interest rate hikes include:
- 7% for overpayments (payments made in excess of the amount owed), 6% for corporations;
- 4.5% for the portion of a corporate overpayment exceeding $10,000;
- 7% for underpayments. (taxes owed but not fully paid); and,
- 9% for large corporate underpayments.
Under the Tax Code, the IR sets interest rates on a quarterly basis. For taxpayers aside from corporations, the overpayment and underpayment rate amounts to the federal short-term rate plus 3 percentage points.
Typically, when it comes to a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points, while the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus another 5 percentage points. The rate on the part of a corporate overpayment of tax over $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.
The interest rates announced Tuesday by the IRS are derived from the federal short-term rate determined in October.
Separately, the IRS also announced Tuesday that its Office of Chief Counsel partnered recently with the American Bar Association Tax Section to hold their first centralized National Virtual Settlement Event over four days in October. The event was inspired by the monthlong virtual event held in March 2021 during the height of the COVID-19 pandemic.
Over the course of those four days, a total of 44 cases were settled. There were at least 59 meetings from Oct. 24 through Oct. 27 that included taxpayers, pro bono attorneys and representatives of the IRS Office of Chief Counsel.
Unlike previous Settlement Day events that are typically organized locally for taxpayers with a nearby place of trial, this event was organized at the national level to support unrepresented taxpayers who may not be able to attend a local event.
"This groundbreaking event provided an easier process for taxpayers to get their cases settled," said IRS acting commissioner Doug O'Donnell in a statement. "We are proud of the IRS Office of Chief Counsel for being innovative and making it more convenient to those who may not be able to attend a local event."
Over 75 volunteers from the American Bar Association's Tax Section, including a number of Low Income Taxpayer Clinics and private pro bono attorneys, offered free legal support. IRS revenue officers and tax computations specialists also supported the event by discussing collection options and doing settlement computations with taxpayers.
