IRS Announces Stable Interest Rates for Q3 2024

Interest rates remain the same for the third quarter of 2024

WASHINGTON — The Internal Revenue Service (IRS) has announced that interest rates will remain unchanged for the calendar quarter beginning July 1, 2024. The rates for overpayments and underpayments for individuals will stay at 8% per year, compounded daily. This decision ensures consistency and predictability for taxpayers.

Detailed Breakdown of Interest Rates:

• 8% for overpayments (payments made in excess of the amount owed)
• 7% for corporate overpayments
• 5.5% for the portion of a corporate overpayment exceeding $10,000
• 8% for underpayments (taxes owed but not fully paid)
• 10% for large corporate underpayments

Determination Process:

Under Section 6621 of the Internal Revenue Code, interest rates are determined quarterly based on the federal short-term rate plus an additional percentage. For the upcoming quarter, the federal short-term rate, determined in April 2024, was rounded to the nearest full percent, resulting in a rate of 5%. This rate is consistent with the interest computation rules established in Revenue Ruling 2024-11, outlined in the full announcement here.

Specifics for Different Taxpayer Categories:

1. Individuals and Corporations:

• The overpayment rate for individuals is 8%, and for corporations, it is 7%.
• The underpayment rate for all taxpayers is 8%.

1. Corporate Overpayments:

• For corporate overpayments exceeding $10,000, the rate is 5.5%.

1. Large Corporate Underpayments:

• The rate for large corporate underpayments is set at 10%.

Computation Method:

Interest rates are computed based on daily compounding, ensuring precise calculation of interest owed or due. The IRS uses the federal short-term rate as a baseline, adding three percentage points for individual overpayments and underpayments, two percentage points for corporate overpayments, and five percentage points for large corporate underpayments. This methodology is mandated under Section 6621 and ensures uniformity and fairness in interest rate determination.

Application:

These interest rates are applicable to amounts bearing interest during the calendar quarter beginning July 1, 2024. Taxpayers should reference these rates when calculating interest on overpayments and underpayments during this period. Additionally, these rates apply to estimated tax underpayments for the third calendar quarter of 2024 and to section 6603 deposits, which will carry an interest rate of 5%.

What This Means for New Businesses and Startups in 2024:

In simpler terms, here’s what this announcement means for new businesses and startups:

1. Predictable Financial Planning: Knowing that interest rates will remain stable helps new businesses plan their finances better. There won’t be any sudden increases in the interest rates for the third quarter, so businesses can forecast their expenses more accurately.
2. Managing Overpayments: If your business ends up paying more taxes than owed, the IRS will pay you interest on that overpayment at a rate of 7% for corporations and 8% for individuals. This is a good incentive to stay on top of your tax payments and bookkeeping.
3. Handling Underpayments: If your business owes taxes, you’ll be charged an interest rate of 8% on those underpayments. For large corporations, the rate is higher at 10%. It’s crucial to pay your taxes on time to avoid these interest charges.
4. Daily Compounding: The interest is calculated daily, which means that even small amounts can add up over time. Being diligent with your tax payments can save your business from extra costs.
5. Impact on Cash Flow: For startups, managing cash flow is vital. Knowing the interest rates in advance allows you to better manage your finances, ensuring you have enough liquidity to cover potential underpayments or benefit from overpayments.
6. Estimated Tax Payments: If your business needs to make estimated tax payments, these rates will apply to any underpayments, so it’s important to pay the correct amount to avoid interest charges.

Additional Information:

For more details on the interest rates and their computation, please refer to Revenue Ruling 2024-11, included in the IRS’s full announcement. This ruling provides comprehensive information on the interest rates applicable to various periods and categories of taxpayers.

The IRS remains committed to transparency and accuracy in its financial regulations, ensuring that taxpayers have the information they need to comply with tax laws and manage their finances effectively.

For further inquiries, please contact Casey R. Conrad of the Office of the Associate Chief Counsel (Procedure and Administration) at (202) 317-6844.

Reference:

• IRS Announcement on Interest Rates for Q3 2024
• Revenue Ruling 2024-11