Taxpayers who owe the IRS money won’t get any relief from interest charges before the end of the year.
The IRS will keep its interest rate on individual tax underpayments at 7% for the fourth quarter of 2026, meaning unpaid federal tax balances will continue accruing interest at that annual rate, compounded daily, from Oct. 1 through Dec. 31.
The same 7% rate applies in the other direction: Individuals who overpay their federal taxes and are owed interest by the government will generally receive interest at a 7% annual rate, also compounded daily.
For the average taxpayer, however, the more consequential number is the underpayment rate. It can apply when someone owes taxes but doesn’t pay the full amount on time, and the IRS also uses the rate when determining additions to tax for certain estimated-tax underpayments.
The rate isn’t changing from the third quarter. But remaining at 7% means carrying a balance with the IRS can become increasingly expensive the longer it remains unpaid.
What 7% means for someone who owes taxes
The IRS rate isn’t a one-time 7% charge. Interest accrues on an outstanding tax balance and is compounded daily.
That means a taxpayer with an unpaid balance can continue accumulating interest until the obligation is paid, subject to the rules governing when interest begins and ends.
The rate is determined quarterly under federal law. For individual taxpayers, the formula is the federal short-term rate plus 3 percentage points.
The federal short-term rate used for the fourth-quarter calculation was 4%, producing the 7% rate that takes effect Oct. 1.
The IRS recalculates the applicable rate every quarter, so 7% isn’t guaranteed to continue into 2027.
Estimated tax payments can matter, too
The announcement isn’t relevant only to people who discover a balance when they file their annual return.
Federal law also uses the underpayment interest rate when calculating additions to tax for certain failures to pay sufficient estimated taxes.
That can matter for taxpayers whose income isn’t fully covered by traditional paycheck withholding, including some self-employed workers, independent contractors, business owners and people with significant investment or other income.
For the fourth quarter, the applicable rate for estimated-tax underpayments will also be 7%.
That doesn’t mean every taxpayer who underpays estimated taxes automatically owes 7% of the shortage. The rules governing estimated-tax penalties and exceptions are more complicated, and the amount depends on the taxpayer’s circumstances and how long an underpayment remains outstanding.
The rate has come down from its recent peak, but not by much
The longer-term IRS data show how dramatically the cost of owing the government changed following the period of extremely low interest rates earlier this decade.
The rate for noncorporate overpayments and underpayments was just 3% throughout 2021 and during the first quarter of 2022. It climbed to 4% in the second quarter of 2022, 5% in the third and 6% in the fourth.
By the beginning of 2023, the rate had reached 7%. It increased to 8% for the final quarter of 2023 and stayed there throughout 2024.
The rate dropped to 7% at the beginning of 2025 and remained there through the first quarter of 2026. It briefly declined to 6% during the second quarter this year before returning to 7% for the third quarter.
Now it will remain at 7% through Dec. 31.
For taxpayers carrying an IRS balance, that means the borrowing environment remains considerably less forgiving than it was several years ago.
Taxpayers owed money get the same 7% rate
There is another side to the IRS interest calculation.
For individuals, the fourth-quarter overpayment rate will also remain at 7%. Overpayment interest generally applies in situations where the federal government owes a taxpayer interest on money it has held beyond applicable time periods.
Corporations operate under different rates. The general corporate overpayment rate will be 6%, while the rate on the portion of a corporate overpayment exceeding $10,000 will be 4.5%.
Large corporate underpayments will carry a 9% rate.
For most households, though, the number to remember is 7%.
The announcement doesn’t change federal income tax brackets, the amount withheld from a paycheck or the tax rate applied to someone’s income. It specifically governs interest associated with tax overpayments and underpayments.
For taxpayers who are fully paid up, the fourth-quarter announcement may have no direct financial effect at all.
For those who aren’t, the practical takeaway is different: Waiting to resolve an unpaid federal tax balance will continue to carry a relatively high cost through the end of the year.
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