Interest on underpayments of federal tax must accrue interest, compounded daily, at rates published quarterly by the Internal Revenue Service in accordance with section 6621 of the Internal Revenue Code. (See Rev. Proc. 95-17, 1995-1 C.B. 556, for rules on how to calculate compounded interest.)
The rates for the last twelve calendar quarters are as follows:
| Calendar Quarter | Underpayments | Noncorporate Overpayments | Corporate Overpayments | Large Corp. Overpayments | Large Corp. Underpayments |
|---|---|---|---|---|---|
| Jan-Mar 2006 | 7% | 7% | 6% | 4.5% | 9% |
| Apr-Jun 2006 | 7% | 7% | 6% | 4.5% | 9% |
| Jul-Sep 2006 | 8% | 8% | 7% | 5.5% | 10% |
| Oct-Dec 2006 | 8% | 8% | 7% | 5.5% | 10% |
| Jan-Mar 2007 | 8% | 8% | 7% | 5.5% | 10% |
| Apr-Jun 2007 | 8% | 8% | 7% | 5.5% | 10% |
| Jul-Sep 2007 | 8% | 8% | 7% | 5.5% | 10% |
| Oct-Dec 2007 | 8% | 8% | 7% | 5.5% | 10% |
| Jan-Mar 2008 | 7% | 7% | 6% | 4.5% | 9% |
| Apr-Jun 2008 | 6% | 6% | 5% | 3.5% | 8% |
| Jul-Sep 2008 | 5% | 5% | 4% | 2.5% | 7% |
| Oct-Dec 2005 | 6% | 6% | 5% | 3.5% | 8% |
As can be seen from the above table, the interest rate that applies to overpayments of tax by individuals (and other noncorporate taxpayers) is the same rate that applies to underpayments of tax.
For corporations, the interest rate on overpayments of $10,000 or less is 1 point less than the rate for underpayments, and the interest rate on the portion of the overpayment in excess of $10,000 (i.e., "large" overpayments) is 2.5 points less than the rate on underpayments. Corporations also pay interest that is 2 points higher for "large corporate underpayments" (i.e., underpayments of more than $100,000).
The underpayment interest rates that have applied since 1987 are shown below.
| Year | First Quarter | Second Quarter | Third Quarter | Fourth Quarter |
|---|---|---|---|---|
| 1987 | 9% | 9% | 9% | 10% |
| 1988 | 11% | 10% | 10% | 11% |
| 1989 | 11% | 12% | 12% | 12% |
| 1990 | 11% | 11% | 11% | 11% |
| 1991 | 11% | 10% | 10% | 10% |
| 1992 | 9% | 8% | 8% | 7% |
| 1993 | 7% | 7% | 7% | 7% |
| 1994 | 7% | 7% | 8% | 9% |
| 1995 | 9% | 10% | 9% | 9% |
| 1996 | 9% | 8% | 9% | 9% |
| 1997 | 9% | 9% | 9% | 9% |
| 1998 | 9% | 8% | 8% | 8% |
| 1999 | 7% | 8% | 8% | 8% |
| 2000 | 8% | 9% | 9% | 9% |
| 2001 | 9% | 8% | 7% | 7% |
| 2002 | 6% | 6% | 6% | 6% |
| 2003 | 5% | 5% | 5% | 4% |
| 2004 | 4% | 5% | 4% | 5% |
| 2005 | 5% | 6% | 6% | 7% |
| 2006 | 7% | 7% | 8% | 8% |
| 2007 | 8% | 8% | 8% | 8% |
| 2008 | 7% | 6% | 5% | 6% |