Individuals will face a 7% annual penalty for overpayments and underpayments, up from 6%.

On November 29th, the IRS announced that interest rates will rise for the calendar quarter beginning January 1, 2023.

Individual overpayment and underpayment rates will increase from 6% for the fiscal quarter that started on October 1 to 7% annually, compounded daily. The new rates are detailed below:

• 6% for businesses, 7% for overpayments (payments made in excess of what is owed).
• For any corporate overpayment that is greater than $10,000, the tax rate is 4.5%.
• 7% for any underpayments (taxes owed but not fully paid).
• 9% for large-scale corporate 

The rate of interest is decided on a quarterly basis in accordance with the Internal Revenue Code. The overpayment and underpayment rate for non-corporate taxpayers is equal to the federal short-term rate plus 3 percentage points.

In the case of a corporation, the underpayment rate is typically equal to the federal short-term rate plus 3 percentage points, and the overpayment rate is equal to the federal short-term rate plus 2 percentage points. The federal short-term rate plus five percentage points is the rate for large corporate underpayments. The federal short-term rate plus half (0.5) of a percentage point applies to the portion of a corporate overpayment of tax that exceeds $10,000 for a tax period.

The federal short-term rate established in October served as the basis for the interest rates announced. More information can be found in Revenue Ruling 2022-23.

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