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2015 Second Quarter IRS Underpayment and Overpayment Interest Rates

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On March 13, 2015, the IRS announced that the underpayment and overpayment interest rates for the calendar quarter beginning April 1, 2015, will remain unchanged. The rates will be:

three (3) percent for overpayments [two (2) percent in the case of a corporation];
three (3) percent for underpayments;
five (5) percent for large corporate underpayments; and
one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

How are the IRS Underpayment and Overpayment Rates Determined?

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

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.

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.

What do the IRS Underpayment and Overpayment Rates Affect?

The most important impact of the IRS underpayment and overpayment rates is felt whenever the tax liability of a US taxpayer changes from the liability indicated on the original tax return. Most often, this happens as a result of an amended tax return filed voluntarily by the taxpayer or as a result of an IRS audit.

If, as a result of an audit or an amended tax return, the taxpayer is assessed with additional tax liability, the underpayment interest rate will be applied from the due date of the original tax return (usually, April 15) through the date of assessment of additional tax liability (or the date the amended tax return is filed). Conversely, if an amended tax return or an IRS audit produces a refund, then, the IRS is obligated to pay the overpayment interest rate on the refund due.

IRS Underpayment Rate and PFIC Calculations

The IRS Underpayment Rate has a surprising additional affect on a taxpayer’s liability. If a taxpayer owns a PFIC that is considered a Section 1291 fund, then, under the default PFIC method, he will need to calculate PFIC interest on the PFIC tax due. This PFIC interest is calculated at the IRS underpayment rates.

2014 Individual Income Tax Rates

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The IRS recently announced the 2014 individual income tax rates with inflation adjustments wit respect to each tax bracket. Remember, since the American Taxpayer Relief Act of 2012 was signed into law on January 2, 2013, a new tax bracket of 39.4% appeared. Also, note that the 2014 individual income tax rates listed below do not include other taxes such as those imposed on investment income by the new health care laws. Finally, it is important to remember that the default PFIC regime calculations do not depend on your personal tax rate.

As adjusted for inflation, the following marginal income tax rates will apply to individuals in the tax year 2014:

Filing Single

10% $0 – $9,075
15% $9,076 – $36,900
25% $36,901 – $89,350
28% $89,351 – $186,350
33% $186,351 – $405,100
35% $405,101 – $406,750
39.6% $406,751 and greater

Notice the small range of the 35% tax bracket.

Filing Married Filing Jointly and Surviving Spouses

10% $0 – $18,150
15% $18,151 – $73,800
25% $73,801 – $148,850
28% $148,851 – $226,850
33% $226,851 – $405,100
35% $405,101 – $457,600
39.6% $457,601 and greater

Filing Married Filing Separately

10% $0 – $9,075
15% $9,076 – $36,900
25% $36,901 – $74,425
28% $74,426 – $113,425
33% $113,426– $202,550
35% $202,551 – $228,800
39.6% $228,801 and greater

Filing Head of Household

10% $0 – $12,950
15% $12,951 – $49,400
25% $49,401 – $127,550
28% $127,551 – $206,600
33% $206,601 – $405,100
35% $405,101 – $432,200
39.6% $432,201 and greater

Underpayment and Overpayment Interest Rates for the Third Quarter of 2011

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On May 16, 2011, the Internal Revenue Service announced that interest rates for the calendar quarter beginning July 1, 2011, will remain the same as in the previous quarter. The rates will be:

  • four (4) percent for overpayments (three (3) percent in the case of a corporation);
  • four (4) percent for underpayments;
  • six (6) percent for large corporate underpayments; and
  • one and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000.

Section 6621 of the Internal Revenue Code establishes the rates for interest on tax overpayments and tax underpayments. These rates determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Rev. Rul. 2011-12. 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. Pursuant to I.R.C. section 6621(c), the rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. See section 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.

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.

Notice 88-59, 1988-1 C.B. 546, announced that, in determining the quarterly interest rates to be used for overpayments and underpayments of tax under section 6621, the Internal Revenue Service will use the federal short-term rate based on daily compounding because that rate is most consistent with section 6621 which, pursuant to section 6622, is subject to daily compounding.

Interest factors for daily compound interest for annual rates of 1.5 percent, 3 percent, 4 percent and 6 percent are published in Tables 8, 11, 13, and 17 of Rev. Proc. 95-17, 1995-1 C.B. 556, 562, 567, and 571. Interest factors for daily compound interest for an annual rate of 0.5 percent are published in Appendix A of Revenue Ruling 2010-31, 2010-52 IRB 898, 899. 3.

Contact Sherayzen Law Office

If you have any questions with respect to IRS interest rates and any other tax-related concerns, you should contact our experienced tax firm to discuss your case.