Second Quarter 2025 IRS Interest Rates on Overpayment & Underpayment of Tax
On March 6, 2025, the IRS announced that the Second Quarter 2025 IRS interest rates on overpayment and underpayment of tax will remain the same as in the First Quarter of 2025.
This means that, the Second Quarter 2025 IRS interest rates will be 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) percent for the portion of a corporate overpayment exceeding $10,000.
How the IRS Calculated Second Quarter 2025 IRS Interest Rates
The IRS calculates the IRS interest rates based on specific tax provisions. We begin with the Internal Revenue Code (“IRC”) §6621, which 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.
Additionally, under §6621(a)(2), the underpayment rate is the sum of the federal short-term rate plus 3 percentage points. Similarly to overpayments, 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. Also, 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.
Finally, pursuant to the IRC §6621(b)(1), the IRS computed the Second Quarter 2025 IRS interest rates based on federal short-term rates in January of 2025.
Importance of the Second Quarter 2025 IRS Interest Rates
The IRS interest rates are relevant for a great variety of purposes. Let’s highlight three of its most important uses. Firstly, these rates will determine the interest a taxpayer will get on any IRS refunds.
Second, the IRS and the taxpayers use these rates to calculate the interest on any additional US tax liability on amended or audited tax returns. This also applies to the amended (and, in case of SFOP, original) tax returns that the taxpayers submit pursuant to Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures.
Finally, the Second Quarter 2025 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.
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.
