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Archive for the ‘interest’ Category

IRS Interest Rates Continue To Climb

Posted by taxguru on August 15, 2022

In spite of the Biden Gang’s attempts to pretend that there is no such thing as Inflation, IRS is required to adjust how much they charge for late payments and pay out for late refunds.

As of October 1, 2002, the rate will move from the current 5.0% APR to 6.0% APR.

Here is their official press release, announcing this:

IRS announces interest rate increases for the fourth quarter of 2022; 6% rate applies to most taxpayers starting Oct. 1

Three months from now, there will most likely be another IRS announcement of an even higher rate as of January 1, 2023.

For those people trying to maximize their return on investment, this presents an opportunity to earn much more than banks are paying. In earlier times when IRS interest rates were higher than bank savings accounts, I can recall some clients and others holding off on filing amended refund returns for longer than normal in order to accrue more interest from IRS. I’m not necessarily advising this, but just noting that it is a tactic that some people do in times like this.

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IRS Interest Rates Continue To Rise

Posted by taxguru on May 20, 2022

Unlike most State tax agencies, which don’t ever change the interest rates that they charge on late tax payments (Arkansas has always been 10%) or adjust them annually (California, et al), IRS modifies its rates every three months to stay in sync with the overall financial markets.

As anyone would have expected, IRS has just announced that, as of July 1, it will be bumping up the rate it will be charging to 5% from the current 4%.

Here is their press release: IRS interest rates increase for the third quarter of 2022

If you want to consider a good side to this, besides charging taxpayers more on late tax payments, this also means that IRS will be paying taxpayers more for delayed refunds. Those millions of people who still have tax returns stuck in the IRS backlog of unprocessed returns will be earning much more from IRS than any banks are currently paying on savings accounts.

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Inflation Hits IRS

Posted by taxguru on February 23, 2022

Every three months, IRS looks at the current inflation rate and determines how much interest they will be charging taxpayers on late tax payments and paying out to taxpayers for delayed refunds. For the past seven quarters – since July 1, 2020 – it has been three percent (3.0%) APR. It’s not per day. It’s an annual rate.

As we all know, inflation is currently at its highest pace since Jimmy Carter’s reign. IRS has just announced in this press release that, as of April 1, their main interest rate will be a whopping four percent (4.0%) APR.

As I remind clients who are upset about the IRS’s lengthy delays in sending out refunds, their money will be earning a much higher return from IRS that it would in a bank, where they are still paying less than one percent on savings accounts. It’s the silver lining to a bad situation.

Three months from now, I expect to be writing a similar post about IRS raising their interest rate again, to five or six percent.

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Interest Rates Rising

Posted by taxguru on March 8, 2018

Another sign of a growing economy is the rising interest rates being paid on bank accounts and charged by creditors.  One of those creditors charging higher interest rates are our friends at the IRS, who are required by law to adjust how much interest they charge and pay each calendar quarter. 

As per their latest press release, the IRS interest rate will be going up to Five Percent (5.0%) as of April 1, 2018 from the Four Percent (4.0%) rate that has been in effect since April 1, 2016.  It will stay at that rate of Five Percent at least through June 30, 2018.

As you can see on this useful pdf chart of IRS interest rates since 1991, the last time they charged as much as five percent was in the first quarter of 2009. It’s been either three or four percent ever since then.

Just a reminder that the IRS interest rate is an Annual Percentage Rate (APR).  Many people have the incorrect impression that it is a daily interest rate because it is compounded on a daily basis.  As shown on this interest rate calculator, a debt with a 5.0% APR has an effective interest rate of 5.13% when the interest is compounded on a daily basis.

Even at five percent, IRS is a much more reasonably priced lender than many other sources, such as credit cards, which often charge over 30% APR.  If you owe money to IRS, it will save you a ton of interest by working out an installment payment plan with them rather than committing yourself to the usurious rates of the blood sucking credit card loan sharks.

Another reminder – This discussion has dealt with IRS interest rates on Federal tax debts.  Each State tax agency has its own procedures for adjusting, or not adjusting, what they charge as interest on their overdue taxes.  Some modify the interest rate annually, while some never change their percentage.  Arkansas is an example of the latter.  They have been charging ten percent (10.0%) for as long as I can recall.

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