The Internal Revenue Service has confirmed that its interest rate on unpaid taxes will hold at 7 percent for the last quarter of 2026, and that rate compounds daily rather than sitting still once it’s set. For anyone carrying a balance from a filed return, an audit adjustment, or a missed estimated payment, that means the debt keeps growing on top of itself every single day, not just once a year.
The same 7 percent runs in the other direction too: if the IRS is slow sending a refund, it owes the taxpayer interest at the identical rate. For a household with any kind of outstanding balance, that’s a real and compounding cost heading into the fourth quarter, not a one-time penalty that fades.
The 7% Rate Locks In Through December 31
In IR-2026-98, released Aug. 21, 2026, the IRS announced that interest rates will not change for the calendar quarter beginning Oct. 1, 2026. For individuals, both the underpayment rate and the overpayment rate are set at 7% per year, compounded daily. The rate is derived from a formula fixed in the tax code: the federal short-term rate, recalculated each quarter, plus three percentage points for non-corporate taxpayers. This quarter’s number was computed from the federal short-term rate as determined in July 2026, and it holds through the end of the calendar year regardless of what happens to broader interest rates between now and Dec. 31.
The rate applies automatically to anyone with an unpaid tax balance — there’s no separate notice required to trigger it — and it applies whether the balance came from an underpayment on a filed return, an amount assessed after an audit, or unpaid penalties that themselves start accruing interest of their own once they’re due. That includes self-employed taxpayers who underpaid quarterly estimated taxes, since the same 7% clock starts on those amounts as soon as they’re due, not just on a balance discovered at filing time.
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The Same 7% Runs in the Taxpayer’s Favor Too
The rate isn’t only a cost. For non-corporate taxpayers, the overpayment rate — what the IRS pays when it owes a refund and is slow to send it — is set at the identical 7%, also compounded daily. That symmetry doesn’t hold for corporations, where the standard overpayment rate is a point lower, at 6%, than the 7% underpayment rate corporations pay. An individual who overpaid and is waiting on a refund the IRS hasn’t issued within its administrative window earns interest at the same rate a person behind on a bill would be charged.
That’s not an abstract number: 7% compounded daily works out to a little under 1.8% of an outstanding balance building up over just the fourth quarter alone, before any additional penalties, and it keeps building every day the balance goes unpaid in either direction.
This Quarter’s Rate Traces Back to a Dip Earlier in the Year
The 7% rate isn’t a fixture — the IRS recalculates it every quarter, and 2026 shows the number actually moving. According to the IRS’s own quarterly rate table, the individual underpayment and overpayment rate ran at 7% in the first quarter of 2026, dropped to 6% for the second quarter, then moved back up to 7% for the third quarter and now stays at 7% for the fourth. A large corporate underpayment, by contrast, has held at 9% every quarter this year, and the portion of a corporate overpayment above $10,000 has stayed at 4.5% aside from that same second-quarter dip to 3.5%.
Because the rate is locked in for a full quarter once it’s published, a balance that carries across the Sept. 30 boundary won’t see any change in what it’s charged: the same 7% that applied for July through September carries straight into October, November and December.
Daily Compounding Turns 7% Into Something Closer to 7.25%
The rate is quoted as an annual percentage, but the IRS doesn’t apply it once a year. Under the mechanics described on the agency’s own interest page, the IRS assesses interest on the previous day’s balance plus whatever interest has already accrued, every day, until the balance is paid in full. That daily compounding is why the true annual cost of carrying a balance runs slightly above the quoted 7%: running the standard compound-interest math on a 7% annual rate compounded daily produces an effective annual rate of roughly 7.25%, not an even 7%. The gap is small in any single month, but it widens the longer a balance sits unpaid, since each day’s interest is calculated on a slightly larger base than the day before.
What Happens If a Balance Can’t Be Paid in Full
The IRS’s interest page is explicit that paying a balance in full is the only way to stop the daily compounding immediately; partial payments slow the growth but don’t stop it. For anyone who can’t pay in one shot, the agency’s payment plan application lets a taxpayer set up an installment agreement, though interest — and, separately, the failure-to-pay penalty — keeps accruing on whatever balance remains outstanding while the plan is active. There’s no option to have the interest waived simply because a payment plan is in place; the agency only reduces interest tied to an unreasonable IRS error or delay, not to financial hardship.
The Rate Is Locked In by a Published Revenue Ruling
The 7% figure isn’t a press-release estimate; it’s fixed in Revenue Ruling 2026-15, which the IRS says will appear in Internal Revenue Bulletin 2026-36, dated Aug. 31, 2026. Once that ruling publishes, the rate is set for the full quarter and won’t move again until the agency calculates the next federal short-term rate and issues a new ruling for the first quarter of 2027 — the one date on the calendar that actually matters for anyone deciding whether to pay a balance now or let it ride into the new year. Nothing about the number is negotiable in the meantime — it’s set until the calendar turns.
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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