The Internal Revenue Service, on 30th November 2022, announced an increase in the interest rates for the quarter beginning on 1st January 2023. 

The 7% interest rate, up from 6% for the quarter that started on October 1, 2022, applies to pending refunds and outstanding tax amounts. The IRS claimed that as of November 18, there were 3.4 million unprocessed tax returns for 2022, including files for prior tax years.

The complete list of new rates is as follows:

• Overpayments (payments made in excess of the amount owing) are subject to a 7% interest.
• 4.5% on the part of a corporate overpayment that exceeds $10,000.
• Underpayments (tax owed but not fully paid) are subjected to a 7% tax
• Large corporate underpayments are subject to a 9% tax

The Internal Revenue Service (IRS) has, as a general rule, until the end of the 45th day following the tax filing deadline to process your return and provide a refund. After then, daily compounding interest accumulates on your “overpayment.”

Unfortunately, the IRS interest is taxable. The new rate increases the cost of outstanding bills. In addition to the interest that accrues beyond the tax deadline, there are penalties. The late filing penalty is 5% of your outstanding balance every month or a fraction of a month for federal taxes, up to a maximum of 25%, while the late payment cost is 0.5%.

However, you may have an option if you have a sizeable tax balance in the form of an online instalment plan or an offer in compromise.