IRS Interest Rates to Remain Steep in January — but There’s Hope for Cuts in 2026

The penalty for underpaying your taxes will remain the same this winter as it is now.

The IRS has announced that the interest rates it charges for underpayments will not change for the first quarter of 2026 — Jan. 1 through March 31.

The rates the federal agency pays for overpayments also will remain the same. (Yes, if you pay more in federal income taxes than you owed, the government owes you interest on the excess.)

This is not to say you should consider paying your taxes late, though. Despite the IRS’ interest rates not increasing next quarter, they are relatively high by recent historical standards. That could change as early as the second quarter of 2026, though.

The latest IRS interest rates

Here are the interest rates for personal taxes for the first quarter of 2026 (and how they compare with the rates for the fourth quarter of 2024, which was the last time they changed):

• Individual underpayment: 7% (down from 8% the last time they changed)
• Individual overpayment: 7% (down from 8%)

The rates for corporate taxes (and how they compare with the fourth quarter of 2024) are:

• Corporate underpayment: 7% (down from 8% the last time they changed)
• Large (more than $100,000) corporate underpayment: 9% (down from 10%)
• Corporate overpayment: 6% (down from 7%)
• The part of a corporate overpayment exceeding $10,000: 4.5% (down from 5.5%)

All these rates compound daily.

See Also:

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How IRS interest rates are determined

The IRS adjusts its interest rates for underpayments and overpayments as often as quarterly, depending on the agency’s short-term applicable federal rate (short-term AFR).

Generally, these interest rates are determined by the following formulas:

• Individual underpayment: The short-term AFR + 3 percentage points
• Individual overpayment: The short-term AFR + 3 percentage points
• Corporate underpayment: The short-term AFR + 3 percentage points
• Large corporate underpayment: The short-term AFR + 5 percentage points
• Corporate overpayment: The short-term AFR + 2 percentage points
• The part of a corporate overpayment exceeding $10,000: The short-term AFR + 0.5 percentage point

The short-term AFR itself is calculated using a one-month average of the yields from marketable obligations of the federal government with maturities of three years or less, such as Treasury bills.

Where IRS interest rates might be heading

The previously mentioned yields tend to move in the same direction as the federal funds rate, which is set by the Federal Reserve.

The Fed has lowered its target range for the federal funds rate twice in recent months. If that trend continues, the IRS’ interest rates also could start inching down.