IRS Cuts Tax Interest Rates For Q1 of 2025

For the first time since 2020, interest rates for tax overpayments and underpayments will be lower than the previous quarter, starting in January.

The IRS announced on Monday that interest rates will decrease by a percentage point across the board for the calendar quarter beginning Jan. 1, 2025.

For individuals, the rate for overpayments and underpayments will be 7% per year, compounded daily.

Here is the full list of new interest rates for Q1 of 2025:

7% for overpayments (payments made in excess of the amount owed), 6% for corporations.
4.5% for the portion of a corporate overpayment exceeding $10,000.
7% for underpayments (taxes owed but not fully paid).
9% for large corporate underpayments.

Interest rates have been at their current levels of 8% for overpayments and underpayments for individuals since the fourth quarter of 2023.

Table courtesy of the IRS.

The last time the IRS decreased interest rates was for the third quarter of 2020, during the height of the COVID-19 pandemic. At that time, the agency lowered interest rates from 5% for overpayments and underpayments to 3%.

Table courtesy of the IRS.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point, according to the IRS.

The interest rates announced today are computed from the federal short-term rate determined during October 2024. See Revenue Ruling 2024-25 for details.