IRS Penalty for Underpaying Personal Taxes to Remain at 8%

The penalty for underpaying your taxes will not increase in January — though it remains steep.

The IRS announced Nov. 17 that the interest rates it charges for underpayments will remain the same for the first quarter of 2024 — Jan. 1 to March 31 — as they are for the last quarter of 2023.

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.)

For individual taxpayers, the interest rates for the first quarter of 2024 (and how they compare with the rates for the third quarter of 2023) are as follows:

• Individual underpayment: 8% (up from 7%)
• Individual overpayment: 8% (up from 7%)

These rates compound daily.

For corporations, the rates for the first quarter of the new year (and how they compare with the rates for the third quarter of 2023) are as follows:

• Corporate underpayment: 8% (up from 7%)
• Large corporate underpayment: 10% (up from 9%)
• Corporate overpayment: 7% (up from 6%)
• The portion of a corporate overpayment exceeding $10,000: 5.5% (up from 4.5%)

These rates also compound daily.

The IRS adjusts its interest rates for underpayments and overpayments as often as quarterly, depending on the federal short-term rate.

Generally, the IRS’ rates are determined by the following formulas:

• Individual underpayment: The federal short-term rate + 3 percentage points
• Individual overpayment: Same as individual underpayment
• Corporate underpayment: Same as individual underpayment
• Large corporate underpayment: The federal short-term rate + 5 percentage points
• Corporate overpayment: The federal short-term rate + 2 percentage points
• The portion of a corporate overpayment exceeding $10,000: The federal short-term rate + 0.5 percentage point