Interest on an unpaid federal tax balance is not a fixed annual charge that sits still. The Internal Revenue Code re-derives it every three months from a market benchmark, and whatever comes out of that formula then compounds daily against the balance until the balance is gone. For the quarter that begins Oct. 1, the number for individuals came out at 7 percent, unchanged from the rate that has applied since July.
Federal short-term rate plus three percentage points
For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. That is the entire mechanism. When the short-term rate moves, the tax interest rate follows it a quarter later, and when the benchmark holds steady, so does the cost of owing money to the government.
The IRS announced on Aug. 21, 2026 that rates will remain the same for the calendar quarter beginning Oct. 1, and that the figures were computed from the federal short-term rate determined during July 2026. For individuals, the rate for both overpayments and underpayments is 7 percent per year, compounded daily.
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Daily compounding is doing more work than the 7 percent is
The stated rate understates the real cost, because of how the agency applies it. The IRS describes the method precisely on its quarterly rates page: interest is assessed on the previous day’s balance plus the interest already accrued. Each day’s charge becomes part of the base the next day’s charge is calculated against, every day, without pause.
It also does not run against the tax alone. Interest accrues on any unpaid tax, penalties and interest until the balance is paid in full, which means a failure-to-pay penalty starts drawing interest of its own. A payment plan arranges the schedule, not a pause on the meter, so the balance keeps accruing while it is being paid down. The practical consequence for a household carrying a balance is that partial payments made early beat equal payments made later, because every dollar removed from the balance is a dollar the daily calculation no longer touches.
Two rules around that meter catch filers off guard every spring. An extension of time to file is not an extension of time to pay, so tax remains due on the return filing date and underpayment interest applies even when the extension was properly granted. And once the interest is on the account it is close to immovable: the agency reduces it only when it was applied because of an unreasonable error or delay by an IRS officer or employee, not for reasonable cause and not under first-time relief. The one clean escape is a notice. A taxpayer who receives one and pays the amount shown in full on or before the “pay by” date is not charged interest on that amount.
The same 7 percent runs the other direction on a slow refund
The symmetry in this quarter’s numbers is easy to miss. The rate for non-corporate overpayments, meaning payments made in excess of the amount owed, is also 7 percent, compounded daily. Both sides of the individual ledger use the identical formula of short-term rate plus 3 percentage points, so the government charges what it pays.
That matters for anyone whose refund is held up by an amended return or a review. Overpayment interest is not a courtesy the agency extends at its discretion, and the agency publishes exactly when the clock starts: the later of the return’s filing due date, the date a late return was received, the date the return arrived in a processable format, or the date the payment was made. It stops on the day the refund is issued or offset against another liability. One exception limits the whole thing. The IRS allows itself administrative time, typically 45 days, to issue a refund without paying any interest on it, so a refund that is merely slow rather than stuck often earns nothing.
Corporate rates of 6, 4.5 and 9 percent do not apply to a household
The same release lists several other numbers, and they circulate in coverage in ways that confuse individual filers. Corporations get 6 percent on overpayments rather than 7. The portion of a corporate overpayment exceeding $10,000 earns 4.5 percent. Large corporate underpayments carry 9 percent.
Those figures come from different formulas: short-term plus 2 percentage points for a corporate overpayment, short-term plus one-half of a percentage point on the portion above $10,000, and short-term plus 5 percentage points for a large corporate underpayment. None of them reach a Form 1040. An individual, a sole proprietor filing a personal return and a retiree who underpaid estimated tax are all looking at the single non-corporate figure of 7 percent.
Revenue Ruling 2026-15 fixes the number through December
The rates are set out in Revenue Ruling 2026-15, which the IRS says will appear in Internal Revenue Bulletin 2026-36, dated Aug. 31, 2026. Because the announcement covers the quarter running October through December, the individual rate is now settled for the remainder of the calendar year, and any change would take effect in January at the earliest.
The published table for 2026 shows how little movement there has been: 7 percent for the first quarter, 6 percent for the second, 7 percent for the third, and now 7 percent for the fourth. A rate change already announced does not reach backward either, since the IRS applies each quarter’s rate to that quarter only. A balance that has been sitting since the April filing deadline has been accruing at whatever rate applied in each quarter it crossed, and it will finish the year at 7 percent.
This article was produced with AI assistance and reviewed by a human editor. Figures are linked to their primary sources; where a claim could not be verified from the public record, we say so.
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