Fourth Quarter 2024 IRS Interest Rates on Overpayment & Underpayment of Tax
On August 21, 2024, the IRS announced that the Fourth Quarter 2024 IRS interest rates on overpayment and underpayment of tax will remain the same as in the Third Quarter of 2024.
This means that, the Fourth Quarter 2024 IRS interest rates will be as follows:
eight (8) percent for overpayments (seven (7) percent in the case of a corporation);
eight (8) percent for underpayments;
ten (10) percent for large corporate underpayments; and
five and a half (5.5) of a percent for the portion of a corporate overpayment exceeding $10,000.
How Are the IRS interest Rates Calculated?
Internal Revenue Code (“IRC”) §6621 establishes the IRS interest rates on overpayments and underpayments of tax. Let’s deal with the overpayment rates first. Under §6621(a)(1), the overpayment rate is the sum of the federal short-term rate plus 3 percentage points for individuals and 2 percentage points in cases of a corporation. There is an exception to this rule: with respect to a corporate overpayment of tax exceeding $10,000 for a taxable period of time, the rate is the sum of the federal short-term rate plus one-half of a percentage point.
Furthermore, under §6621(a)(2), the underpayment rate is the sum of the federal short-term rate plus 3 percentage points. Again, there is an exception for a large corporate underpayment: in such cases, §6621(c) requires the underpayment rate to be the sum of the relevant federal short-term rate plus 5 percentage points. Additionally, the readers should see §6621(c) and §301.6621-3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applicable date.
Pursuant to the IRC §6621(b)(1), the Fourth Quarter 2024 IRS interest rates were computed based on federal short-term rates in January of 2024.
Why Are the IRS interest Rates Important?
It is important to note that the Fourth Quarter 2024 IRS interest rates are relevant for a great variety of purposes. Let’s highlight three of its most important uses. First, these rates will determine the interest a taxpayer will get on any IRS refunds.
Second, the rates will also be used to establish the interest to be added to any additional US tax liability on amended or audited tax returns. This also applies to the tax returns that were amended pursuant to Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures.
Finally, the Fourth Quarter 2024 IRS interest rates will be used to calculate PFIC interest on any relevant §1291 PFIC tax. This PFIC interest will be reported on the relevant Form 8621 and ultimately Form 1040.
Given the importance of the IRS interest rates, we at Sherayzen Law Office constantly deal with the IRS interest rates on overpayments and underpayments of tax. This is why we closely follow any changes in these IRS interest rates, including the Fourth Quarter 2024 IRS interest rates.