Please read this post to find out about the IRS charging 8% interest on taxes and learn how to avoid this additional charge.
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IRS Charging 8% Interest on Taxes
The IRS charges interest on overdue or unpaid taxes, regardless of the reason for the delay. Interest accrues from the original return due date until the outstanding amount is fully paid. The IRS is required to impose interest until payment is made in full.
Interest is calculated on any unpaid taxes from the due date of the original return to the payment date. The interest rate on overdue federal taxes is reviewed and updated every three months. Currently, the IRS charges 8% interest on taxes that are filed late or paid in full.
This article will provide a detailed discussion on the IRS’s 8% interest rate on overdue taxes, including the reasons for this rate and potential measures to avoid accruing such interest.
Understanding IRS Charging 8% Interest on Taxes
Interest is levied on both tax overpayments and underpayments. Each quarter, the IRS sets the interest rate, typically based on the federal short-term rate plus three percentage points for most individual taxpayers.
For the first quarter (Q1) of 2024 and the fourth quarter (Q4) of 2023, the rates were 8% for individual underpayments and 10% for underpayments by large businesses. During the first three quarters of 2023, the IRS charged a 7% interest rate on most underpayments and a 9% rate on underpayments by large corporations.
IRS Charging 8% Interest on Taxes Overview
| Post Title | IRS Charging 8% Interest on Taxes |
| Country | USA |
| Affected | Late tax fillers |
| Interest Rate | 8% and 10% |
| More Details | Discussed Here |
Reasons for IRS Charging 8% Interest on Taxes
The IRS may charge 8% interest on your taxes under several circumstances, including:
- Failing to File: This occurs when you do not submit your tax return by the deadline or, if an extension is granted, by the extended deadline.
- Failure to Pay: This refers to not paying the full amount of taxes due by the original deadline. An extension to file does not extend the time to pay; taxes must be paid by the original due date. Failure to pay on time after receiving an IRS notice can also result in a failure-to-pay penalty.
- Inadequate Estimated Tax Payments: This applies when you make insufficient quarterly tax payments or withholdings to cover your total tax liability for the year.
- Bad Check: This happens when your bank refuses to honor your check or other form of payment, resulting in a bad check situation.
How to Avoid 8% Extra Charge on Your Taxes?
To avoid the extra 8% interest charge on your taxes, follow these steps:
File on Time: Avoid significant fines by filing your federal taxes or requesting an extension before April 18, 2023.
Increase Retirement Account Contributions: Boosting contributions to traditional IRAs, 401(k)s, or 403(b)s can reduce your taxable income and lower your tax bill.
Invest in a Health Savings Account (HSA): If you have a high-deductible health plan (HDHP) through your employer, consider contributing to an HSA to save for unexpected medical expenses.
Plan Your Payments: Paying your tax bill in full is the best way to avoid interest charges. If full payment isn’t possible, set up an installment agreement with the IRS for monthly payments. This arrangement can help you avoid penalties and reduce interest costs.
If the pandemic or other circumstances impacted you, the IRS may be able to reduce or waive some fines for reasonable cause. This relief is available if you made a genuine effort to comply with the tax code but were unable to do so due to uncontrollable events or circumstances.
Conclusion
Before considering an abatement, the IRS requires that all penalties and interest be paid in full. Once the bill is paid, the “interest meter” stops, meaning no additional interest will accrue.
You can request an abatement if you can show that the interest was partly due to an unjustified delay by an IRS employee. To do this, write to the IRS office that issued the bill within the IRS-mandated time frame, clearly explaining the reason for your request and providing any supporting documents.
Thank you for reading our post on IRS 8% Interest Charges. We hope you found this information helpful.