Wondering About Interest Rates Charged by the IRS? Here Are The Rules.

The IRS charges high penalties and interest when you owe taxes. Usually it's hard to determine the rate, since there isn't a standard percentage that they go by. However, use the rules below to help guide you in figuring out or checking your interest:

1. The IRS changes the interest rate it charges each quarter. The rate is determined by taking the federal standard rate plus 3%. Currently for the first quarter of 2009, the rate is 5%. The IRS interest rate has ranged from 5% to 9% in the past 6 years. The amount of interest is computed based on the rate applied in each quarter to the amount owed.

2. The IRS changes this rate each quarter and publishes it in their Internal Revenue Bulletin. See this bulletin for this quarter's update.

3. The interest rate is compounded DAILY.

4. Interest is charged on the taxes and penalties assessed.

5. The interest rate does not change when you get into enforcement or into an installment agreement(IA). What changes during enforcement or an IA is the "failure to pay" penalty rate.

6. Interest is still charged when your are in currently not collectible or any other "collection hold" status.

7. If you are a large corporation, your interest rates is higher.

8. Any other interest rate remains at the standard federal rate plus 3% unless the you have a balance from a "tax shelter". In that case the IRS charges 120% of the rate - i..e. 6% now.

Hope this help!
-The Good Tax Helper