If you owe taxes or are waiting on a refund, you might want to pay close attention to this. Starting July 1, 2025, the IRS will raise the interest rates it charges on underpayments and overpayments of taxes.
This change happens every quarter and is based on short-term federal interest rates. Because interest rates have been rising lately, the IRS is adjusting its numbers too. Whether you are a business or an individual, here is what you need to know so you are not caught off guard.
What is the new IRS interest rate for underpayments?
If you file late or do not pay your taxes in full by the deadline, the IRS will charge you interest on the unpaid amount. Starting in July:
- Individuals will pay 8% interest per year, compounded daily
- Corporations will also pay 8% interest on underpayments
- For large corporate underpayments, the rate jumps to 10%
So, if you know you will owe taxes, it may be better to pay early or at least pay what you can to lower how much interest you rack up.
What is the new IRS interest rate for overpayments?
If you are due a refund from the IRS because you overpaid your taxes, you will actually earn interest—but do not expect to get rich off it. Starting July 1:
- Individuals will earn 8% interest, compounded daily
- Corporations will earn 7%
- For corporate overpayments over $10,000, the interest drops to 5.5%
That means if the IRS owes you a refund and takes a while to send it, you will earn a little more interest than before—but probably not enough to make a big difference unless the delay is long.
Why does the IRS adjust interest rates?
The IRS updates its interest rates every three months, based on what is happening with the federal short-term rate. They add a few percentage points on top of that, depending on your situation:
- 3% extra for individuals
- 5% extra for large corporate underpayments
- Only 2% extra for large corporate overpayments
So when the Federal Reserve raises interest rates, IRS rates follow right behind.
What should you do if you owe or expect a refund?
This change matters more than it might seem. Here are a few things you can do:
- If you owe taxes, pay early to avoid higher interest charges
- If you expect a refund, know that the IRS will pay you a little more interest—but only if it takes time to send it
- Do not count on IRS interest as a big bonus; it adds up slowly and only if your refund is delayed
You can find all the details in Revenue Ruling 2025-13 on irs.gov.
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