2023 IRS Quarterly Interest Rates on Overpayment/Underpayment of Tax

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The 2023 IRS quarterly interest rates 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 2023 IRS quarterly interest 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 under the Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures.

Finally, the 2023 IRS quarterly 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.

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 2023 IRS quarterly interest rates.

Below, I lay our the 2023 IRS quarterly interest rates for each quarter.

How the 2023 IRS quarterly Interest Rates Are Calculated

Internal Revenue Code (“IRC”) §6621 establishes the IRS interest rates on overpayments and underpayments of tax. 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.

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. 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.

2023 First Quarter IRS Interest Rates

On November 29, 2022, the IRS announced another increase in the IRS interest rates on overpayment and underpayment of tax.

This means that, effective on January 1, 2023 the First Quarter 2023 IRS interest rates are as follows:

seven (7) percent for overpayments (six (6) percent in the case of a corporation);

seven (7) percent for underpayments;

nine (9) percent for large corporate underpayments; and

four and a half (4.5) of a percent for the portion of a corporate underpayment exceeding $10,000.

2023 Second Quarter IRS Interest Rates

On February 13, 2023, the Internal Revenue Service announced that interest rates would remain the same for the calendar quarter beginning April 1, 2023.  In other words, the first quarter and the second quarter IRS interest rates were exactly the same.

2023 Third Quarter IRS Interest Rates

On May 22, 2023, the Internal Revenue Service announced that interest rates would remain the same for the calendar quarter beginning July 1, 2023.  In other words, the IRS interest rates remained the same for the first three quarters of 2023.

2023 Fourth Quarter IRS Interest Rates

On August 25, 2023, the Internal Revenue Service announced that it would increase the interest rates for the calendar quarter beginning October 1, 2023.

  • This means that, the Fourth Quarter 2023 IRS interest rates are 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 underpayment exceeding $10,000.

The IRS Hiring Spree in 2019 and 2020 | Tax Lawyer & Attorney

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The IRS stated in December of 2019 that it hired about 9,500 people during the fiscal year 2019 and it is trying to add another about 5,300 employees as soon as possible. This new IRS hiring spree is meant to reverse the long-term declining trend in IRS employment.

The IRS Hiring Spree: 2009-2018 Trend

Between 2009 and 2017, the IRS suffered a spectacular loss in employees. From about 95,000 employees in 2009, the number of employees dropped to less than 75,000 in 2018. In other words, the IRS lost about 20,000 employees during these years. These losses were mostly due to budget cuts.

The IRS Hiring Spree: 2019-2020 Trend Change

While the IRS did not receive all of the funds it requested, the Trump administration was able to secure sufficient funds for the agency to start hiring again. The fiscal year 2019 saw a complete reversal in the trend with about 9,500 employees added. This is definitely not the end of the IRS hiring spree – the IRS is planning to add another 5,300 employees in early 2020.

The IRS Hiring Spree: What It Means to US Taxpayers

This huge hiring spree at the IRS will have a direct impact on US taxpayers. On the one hand, the IRS customer service should improve with the larger number of representatives.

On the other hand, such a huge inflow of future IRS agents means an inevitable rise in IRS enforcement efforts, particularly IRS audits. Reinforced by hundreds of additional examiners, the IRS will be able to expand audits everywhere, including international tax audits concerning FBAR and FATCA compliance.

US taxpayers with undisclosed foreign assets and foreign income should keep in mind this impending wave of IRS FBAR and FATCA audits. Rather than just wait for the IRS to discover their prior noncompliance with US tax laws, these taxpayers should explore their offshore voluntary disclosure options with an experienced international tax attorney as soon as possible.

Contact Sherayzen Law Office for Professional Help with IRS International Tax Audits

Mr. Eugene Sherayzen is a highly experienced international tax attorney and owner of international tax law firm, Sherayzen Law Office, Ltd. He and his law firm have successfully helped hundreds of US taxpayers to resolve their prior noncompliance with US international tax laws. We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

IRS Interest Rates for the Second Quarter of 2019 | PFIC Tax Lawyer & Attorney

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On February 25, 2019, the IRS announced that the IRS underpayment and overpayment interest rates will remain the same for the second quarter of 2019 as they were in the first quarter of 2019. The second quarter of 2019 begins on April 1, 2019 and ends on June 30, 2019.

This is an important announcement because these rates will have impact on various calculations and affect many US taxpayers. In particular, the second quarter of 2019 IRS interest rates will apply to the calculation of interest owed on any underpayment of tax as calculated on the amended tax returns. This includes the payments that US taxpayers must make pursuant to the Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures.

Moreover, the increase in the interest rates for the second quarter of 2019 directly affects the calculation of PFIC interest due on any PFIC tax. It is important to remember that PFIC interest cannot be offset by foreign tax credit.

According to the aforementioned IRS announcement, the second quarter of 2019 IRS interest rates will be as follows: 

six (6) percent for overpayments (five (5) percent in the case of a corporation);
three and one-half (3.5) percent for the portion of a corporate overpayment exceeding $10,000;
six (6) percent for underpayments; and
eight (8) percent for large corporate underpayments.

Under the Internal Revenue Code, the rate of interest for the second quarter of 2019 is determined on a quarterly basis. The current year’s overpayment and underpayment interest rates are computed from the federal short-term rate determined during January 2019 to take effect February 1, 2019, based on daily compounding.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

IRS Waives 2018 Estimated Tax Penalty for Certain Taxpayers | Tax News

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On January 16, 2019, the IRS announced that it would waive the 2018 estimated tax penalty for taxpayers who paid at least 85% of their total tax liability during 2018, either through federal income tax withholding, quarterly estimated tax payments or the combination of both of these payment methods. These changes will be integrated in the forthcoming revision of Form 2210 and instructions.

The 85% threshold is a reduction from the usual 90% threshold required to avoid a penalty. It appears that this new limitation will apply only to the 2018 estimated tax penalty.

Why did the IRS single out the 2018 estimated tax penalty for this additional relief? Very simple – the IRS is trying to help the taxpayers who were unable to properly calculate the needed tax withholding and estimated tax payments due to the numerous changes to tax laws introduced by the 2017 Tax Cuts and Jobs Act.

The IRS probably also feels that its own federal tax withholding tables could have contributed to underpayment of tax by many taxpayers. When they were released in early 2018, the updated federal tax withholding tables reflected only the lower tax rates and the increased standard deduction. The tables, however, did not fully reflect other changes, such as the elimination of personal exemptions (including exemptions for dependents) and the severe limitations placed on  itemized deductions. Hence, if a taxpayer relied on the federal tax withholding tables, he would have been unfairly exposed to the 2018 estimated tax penalty had the IRS refused to grant this relief.

In all fairness, it should be mentioned that the IRS attempted to correct its mistake by initiating a very extensive education campaign (which also involved all IRS partner groups) for taxpayers with respect to the need to check on their tax withholding.

It is important to point out that the taxpayers should pay a lot more attention to their tax withholding for 2019 so that a 2018 estimated tax penalty does not turn into a 2019 estimated tax penalty. This is especially true for taxpayers who will now owe (maybe, somewhat unexpectedly for them) taxes on their tax returns. The highest-risk taxpayers are, of course, those who have itemized their deductions and complex income. Sherayzen Law Office also warns that taxpayers with foreign income are within this high-risk category.

2018 Individual Tax Rates | International Tax Lawyer & Attorney

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The Tax Cuts and Jobs Act of 2017 modified the tax brackets that existed in tax year 2017. In this short essay, I will discuss the new 2018 individual tax rates.

2018 Individual Tax Rates: Historical Background

Tax rates seem to change every time there is a new President. For example, when President Bush got elected in 2000, the Congress passed the Economic Growth and Tax Relief Reconciliation Act of 2001 creating a new tax bracket and bringing the rest of the tax rates down; the top rate was gradually reduced to 35% from 39.6%.

Then, under the new administration of President Obama, the American Taxpayer Relief Act of 2012 increased the tax rates again with the top rate going back up to 39.6%.

2018 Individual Tax Rates: 2017 Tax Reform

Under President Trump, the Congress passed a major reform of the US tax system through the Tax Cuts and Jobs Act of 2017. The tax rates were among the most important changes with respect to domestic US tax law.

While the tax reform preserves the same seven tax brackets for individual tax payers, it introduces new 2018 individual tax rates for almost each of them. Under the previous law, the tax brackets were 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. Now, the new rates starting tax year 2018 are much lower: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

It is important to emphasize that these are not permanent changes. The new tax brackets will operate only through tax year 2025; starting January 1, 2026, the tax rates will return to those that existed in 2017.

2018 Individual Tax Rates: Income Thresholds for Tax Brackets Increase

In addition to lower tax rates, the 2017 tax reform also restructured the income thresholds that apply to most tax brackets. Generally, the income thresholds went up.

For example, in order to be subject to 39.6% tax in 2017, taxpayers filing a joint tax return must have had income in excess of $470,700. In 2018, in order to be subject to the top bracket’s tax rate of 37%, the same couple will have to have income in excess $600,000. The income of $470,700 would only trigger the 35% tax rate in 2018.

Sherayzen Law Office has long held the view that the increase in the income thresholds for tax brackets is especially important (perhaps, more so than the decrease in tax rates) to alleviate the tax burden of the middle class. However, we do note with alarm that the benefits might have been spread too widely to include the top 1% of the earners while the 10% bracket was kept essentially the same. We believe that this was one of the reasons why the Congress made the increase in income thresholds for tax brackets a temporary one despite the anticipated inflation pressures in the future.