ARTICLE | March 11, 2025
Authored by FMF&E
The IRS has confirmed that interest rates for tax overpayments and underpayments will remain unchanged for the second quarter of 2025, covering the period beginning April 1. While interest rates have fluctuated in recent years due to economic conditions, taxpayers will see no changes this time around.
Key Interest Rates for Q2 2025
For individuals and businesses, the IRS applies different rates depending on whether a taxpayer has overpaid or underpaid their tax liability. The rates for the upcoming quarter are:
7% for overpayments (payments exceeding the tax owed), with a reduced 6% rate for corporations.
4.5% for corporate overpayments exceeding $10,000.
7% for underpayments (unpaid tax balances).
9% for large corporate underpayments.
How These Rates Are Determined
The IRS calculates interest rates based on the federal short-term rate plus a fixed percentage. For individuals, the overpayment and underpayment rate is set at the federal short-term rate plus three percentage points. For corporations, the formula varies:
Corporate overpayments receive the short-term rate plus two percentage points.
Corporate underpayments are charged the short-term rate plus three percentage points.
Large corporate underpayments are subject to the short-term rate plus five percentage points.
Corporate overpayments exceeding $10,000 receive the short-term rate plus 0.5 percentage points.
These rates are adjusted quarterly based on federal short-term rate movements. For Q2 2025, the rates were determined using the short-term rate set in January.
Why This Matters for Taxpayers
For businesses and individuals who expect to owe taxes or are due a refund, these rates influence potential interest charges and payments. Taxpayers who underpay may see their balances accrue interest at a 7% annual rate, compounded daily.
Overpayments may also earn interest, but corporations receive a lower rate compared to individuals.
Given the high rate on large corporate underpayments (9%), businesses with outstanding tax liabilities should settle their obligations promptly to avoid compounding interest costs.
For further details, refer to Revenue Ruling 2025-7, which will be published in Internal Revenue Bulletin 2025-13 on March 24, 2025. If you have questions about how these rates affect your tax situation, consult a tax professional to ensure compliance and optimize your tax strategy.
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