The IRS announced that interest rates for tax overpayments and underpayments will remain the same for the second quarter of 2025, covering the period beginning April 1. Although interest rates have fluctuated in recent years due to economic conditions, taxpayers will not see any changes this time.

Key Interest Rates for Q2 2025

The IRS applies different rates based on whether a taxpayer has overpaid or underpaid their tax liability. For the upcoming quarter, the rates are:

• 7% for overpayments (payments exceeding the tax owed), with corporations receiving a reduced 6% rate.
• 4.5% for corporate overpayments exceeding $10,000.
• 7% for underpayments (unpaid tax balances).
• 9% for large corporate underpayments.

How the IRS Calculates Interest Rates

The IRS sets interest rates based on the federal short-term rate plus a fixed percentage. For individuals, the overpayment and underpayment rate equals the federal short-term rate plus three percentage points. The formula differs for corporations:

• Corporate overpayments receive the short-term rate plus two percentage points.
• Corporate underpayments incur the short-term rate plus three percentage points.
• Large corporate underpayments face the short-term rate plus five percentage points.
• Corporate overpayments exceeding $10,000 receive the short-term rate plus 0.5 percentage points.

These rates adjust quarterly based on movements in the federal short-term rate. The IRS determined the Q2 2025 rates using the short-term rate set in January.

Why These Rates Matter

Individuals and businesses expecting to owe taxes or receive refunds should consider how these rates affect interest charges and payments. Taxpayers who underpay will accrue interest at a 7% annual rate, compounded daily.

Overpayments may also earn interest, though corporations receive a lower rate than individuals.

Businesses with outstanding tax liabilities should settle them quickly to avoid compounding interest costs, especially with large corporate underpayments facing a 9% interest rate.

For more details, refer to Revenue Ruling 2025-7, which the IRS will publish in Internal Revenue Bulletin 2025-13 on March 24, 2025. If you have questions about these IRS interest rates for tax overpayments or underpayments impact your tax situation, contact us to ensure compliance and optimize your tax strategy.