The Internal Revenue Service says the interest meter on unpaid taxes is staying exactly where it has been: 7 percent a year, compounded daily, through the final three months of 2026. The agency confirmed the fourth-quarter rates on August 21, and for anyone carrying a tax balance into the fall, or still waiting on a refund the IRS held too long, it is the same number that has applied since midyear. The rate cuts both ways: it is what the government charges on a late payment, and what it owes back when it is the one running late.
The Fourth-Quarter Numbers, Rate by Rate
For the quarter that begins October 1, the IRS confirmed in IR-2026-98 that every rate category holds at its current level. Individuals who owe back taxes, and individuals who are owed a refund, both sit at 7 percent, compounded daily. Corporations get a split rate: 6 percent on what the IRS owes them, but still 7 percent on what they owe the IRS. A corporation that overpays by more than $10,000 earns only 4.5 percent on the amount above that threshold, a lower GATT rate written into the tax code specifically to discourage companies from parking excess cash with the IRS as a high-yield account. Companies that underpay by large enough sums face the steepest number on the list: 9 percent, reserved for what the code calls large corporate underpayments. The rates come from Revenue Ruling 2026-15, which will run in the IRS’s official bulletin at the end of August. For everyday households, the number that matters most is the individual rate: it applies equally to a retiree who underpaid quarterly estimates on retirement-account withdrawals and to a wage earner still waiting on an amended-return refund.
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A Federal Formula, Not a Political Choice
None of these numbers are set by a vote or a press release. Under Section 6621 of the tax code, the IRS is required to recalculate every rate each quarter using the federal short-term rate as a base, then add a fixed number of percentage points depending on who owes whom. Individuals pay and receive the short-term rate plus 3 points. Corporations receive the short-term rate plus 2 points on refunds but pay the short-term rate plus 3 points on what they owe, and the large-corporate underpayment penalty adds a full 5 points. The IRS’s own rate table lays out those formulas alongside every quarter’s history. Because the federal short-term rate barely moved between the survey period used for the third quarter and the one used for the fourth, none of the add-on rates changed either; the fourth quarter is a repeat of the third, not a new baseline.
Daily Compounding Turns a Small Balance Into a Bigger One
Seven percent sounds manageable next to a credit card, but the daily compounding is what makes an IRS balance harder to shake than it looks. As a hypothetical illustration only, not a figure the IRS has published: a household that owed $5,000 in tax for a full year at 7 percent compounded daily would accrue roughly $362 in interest, a bit more than the $350 that simple annual interest would produce, because each day’s interest gets added to the balance before the next day’s interest is calculated. Run that same balance for two or three years of a payment plan, and the gap between simple and compounded interest keeps widening. That is on top of separate late-filing and late-payment penalties, which accrue independently of interest and are not part of the rate the IRS announced this month.
The IRS Owes Interest Too, Within Limits
The same daily-compounding rule runs in the other direction. If a filer overpays, the IRS generally starts owing interest from the later of the return’s due date or the date the return was actually filed and processed. There is one carve-out: the agency has what it calls administrative time, typically 45 days, to send a refund without owing any interest on it at all. Miss that window and the 7 percent clock starts running on the government’s side of the ledger. Interest is also treated differently than a penalty once it has accrued: the IRS can often waive a penalty for reasonable cause or first-time relief, but by its own guidance it generally will not remove or reduce interest on the same grounds, only when it stems from filing an amended return, qualifying for penalty relief that lowers the balance interest is charged on, or an unreasonable IRS error or delay. A filer who believes the IRS shortchanged the interest owed on a refund can dispute it, according to the IRS’s own guidance on interest, by filing Form 843 within six years of the scheduled overpayment, a deadline that is easy to miss precisely because most people never think to check whether their refund interest was calculated correctly.
A Rate That’s Cooled Since 2024, But Just Ticked Back Up
That history helps explain why 7 percent feels like the new normal. The individual overpayment and underpayment rate ran at 8 percent through all of 2024, then eased to a flat 7 percent for every quarter of 2025. It opened 2026 at 7 percent, dipped to 6 percent for the second quarter, then climbed back to 7 percent for the third quarter and is holding there for the fourth. That pattern tracks the federal short-term rate, which is itself tied to Treasury yields the IRS surveys each quarter. Anyone who set up a payment plan back when the rate was 6 percent will see their balance accruing interest a full point higher for the rest of the year, even though nothing about their individual agreement changed. That reset takes effect the moment the calendar turns to October 1, under the same Revenue Ruling 2026-15 that formally appears in Internal Revenue Bulletin 2026-36 on August 31: the quarter’s rate is locked in before a single day of it has passed.
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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