Interest rates are staying pat. That’s the IRS’s interest rates, not the federal interest rates. The tax agency announced rates for both tax refunds and late payments recently. And both rates will remain the same as they were in the previous quarter.
That means rates in third quarter calendar year, which begins July 1, 2018 will be 5 percent for both overpayments and underpayments. These rates are determined using the federal short-term rate, plus 3 percent.
So, how does this ruling affect you? If you owe money to the IRS, or the IRS owes you money, then these rates are important to know.
For starters, if you have not paid your taxes in full by the due date then you could be hit with a penalty. It is usually 0.5 percent of the amount you still owe for every month your taxes are overdue.
If you do not file on time you could also face a penalty, which is typically 5 percent of the amount you still owe. The penalty will not exceed 25 percent of the total amount you owe.
If you face both failure to pay and failure to file penalties on the same overdue tax the minimum amount you will be charged for both penalties is 5 percent each month. As in almost all cases, if you owe money to the IRS, it’s best to pay it off as quickly as possible to avoid further penalties.
There’s one other note you need to be aware of. If the IRS pays you interest, you do have to count that as taxable income.