IRS: Interest rates will increase in Q3 2022

Heads up: IRS has announced that interest rates will rise yet again in the third quarter of the year. The new rates are listed in Rev. Ruling 2022-11.

Effective July 1, 2022, the new interest rates will be:

• 4% for corporate overpayments
• 2.5% for the portion of a corporate overpayment that’s over $10,000
• 5% for underpayments, and
• 7% for large corporate underpayments.

Interest rates are typically determined based on the federal short-term rate, which is 2% effective May 1, 2022. The underpayment rate for corporations is generally this rate plus three percentage points, and the overpayment rate is this rate plus two percentage points.

Five percentage points are added to the federal short-term rate to create the rate for large corporate underpayments, and half a percentage point is added to this rate to come up with the rate on corporate overpayments that exceed $10,000.

Reminder of current interest rates

Currently, the interest rates are:

• 3% for corporate overpayments
• 1.5% for the portion of corporate overpayments exceeding $10,000
• 4% for underpayments, and
• 6% for large corporate underpayments.

Make sure your finance team has the updated rates from IRS.

Electronic payments key to avoiding interest

So you won’t have to worry about paying interest on your underpaid taxes, IRS recently reminded businesses that it’s best to pay their taxes electronically so the funds will arrive on time.

Corporate taxpayers should use the Electronic Federal Tax Payment System (EFTPS) for all tax payments due. That includes tax deposits, estimated tax payments and installment agreement payments. Companies can also see a history of all their payments, which is valuable in case IRS sends a notice in error about unpaid taxes – or if an auditor comes calling.

It’s also helpful to have an EFTPS account if you’re using a third-party to deposit payroll taxes so you can double-check that payments have been made on your behalf.

Along with interest payments, companies may also be liable for additional penalties if taxes aren’t paid on time. Publication 542 has more details.