How IRS Interest Rates Work Under §6621 and §6622

Every IRS interest rate starts from one anchor: the federal short-term rate. This is a market rate the Treasury determines from the average yield on short-term federal debt, and it is the same starting point that underpins several other statutory rates — it is a close cousin of the yields tracked on our 1-year Treasury constant maturity series.

Section 6621 then adds a fixed number of percentage points to that base, and the size of the add-on depends entirely on who owes or is owed the money and what the balance is. That add-on is the spread. Because the base moves with the market and the spread is fixed by statute, the published IRS rate for any given quarter is simply the federal short-term rate rounded to the nearest whole percent, plus the applicable spread. Understand those two pieces and the whole system becomes legible.

Section 6621 does not set one rate — it sets a family of them. The spread over the federal short-term rate depends on the category:

• Underpayments (individuals): federal short-term rate + 3 points. This is what most taxpayers pay on a late or unpaid balance.
• Non-corporate overpayments: also + 3 points. For individuals, the rate the IRS pays on a refund equals the rate it charges on a shortfall.
• Corporate overpayments: + 2 points — corporations are paid less on their refunds than individuals are.
• Large corporate underpayments: + 5 points, often called "hot interest," applied to sizable corporate deficiencies.
• GATT (large corporate overpayments): + 0.5 points on the portion of a large corporate overpayment above a statutory threshold.

The headline takeaway: an individual pays and receives interest at the same rate, while corporations face a wider, less favorable spread on both sides.

IRS interest rates are not fixed for the year. Section 6621 requires the federal short-term rate to be redetermined and the resulting interest rates to take effect at the start of each calendar quarter — January 1, April 1, July 1, and October 1. The IRS typically announces the coming quarter's rates in a revenue ruling about a month ahead, so the figures are public before they apply.

For a balance that spans several quarters, that means no single rate governs the whole period. Interest for January through March accrues at the first quarter's rate; April onward switches to the second quarter's rate, and so on. Any accurate calculation has to segment the timeline by quarter — which is exactly why a spreadsheet built on a single rate almost always disagrees with the IRS.

Here is the detail that surprises people. Section 6622 provides that IRS interest is compounded daily. The quarterly rate is not applied as simple interest to your original balance; each day's interest is added to the balance, and the next day's interest is charged on that slightly larger figure. Over months and years, the compounding pulls the true cost meaningfully above the stated annual rate.

A worked example, using an illustrative round number: suppose (for example) the federal short-term rate produced an underpayment rate of 8% for a full year. On a $10,000 balance, simple interest would be $800. Compounded daily under §6622, the same 8% yields roughly $833 — an effective annual cost near 8.33%. The gap widens the longer a balance sits unpaid. Rather than model that by hand, feed your dates and balance into the IRS interest calculator, which segments by quarter and compounds daily for you. (The 8% here is purely for illustration — it is not a current rate.)

The same statute cuts both ways. When you underpay, interest under §6621 runs from the original due date of the return until the balance is paid — and note that interest is charged not only on the tax itself but on assessed penalties as well, so the two compound together. There is no interest-free grace period for a balance due; the clock starts at the deadline, not at the notice.

When you overpay, the IRS owes you. On a refund, interest generally accrues at the overpayment rate — the same short-term-plus-three figure for individuals. But there is a catch: if the IRS issues your refund within 45 days of the return's due date (or of the date you filed, if later), it owes no interest at all. Past that 45-day window, overpayment interest begins to run in your favor.

It is easy to conflate the IRS rate with other statutory interest, but they are governed by different laws and different formulas. Federal court judgments accrue post-judgment interest under 28 U.S.C. §1961 — pegged to the 1-year Treasury yield with no added spread and compounded annually, not daily. You can compare that mechanism on the federal post-judgment rate page or model it with the post-judgment interest calculator.

State courts differ again: pre-judgment and judgment interest vary widely by jurisdiction, which is why we track them state by state in the state rate index and in our prejudgment interest reference. The lesson is simply not to assume the IRS number applies anywhere outside a federal tax balance — each regime has its own base, spread, and compounding convention.

To compute IRS interest accurately you need four inputs: the balance, the date interest starts, the date it stops, and the applicable quarterly rates across that span. Because the rate resets quarterly and compounds daily, the reliable path is to let a tool segment the timeline for you — start with the IRS interest calculator, and browse related tools on the main calculators index.

This guide is general information, not legal or tax advice. Statutory rates change every quarter and edge cases abound, so always confirm the figure against the IRS's own published quarterly revenue ruling before relying on it for a filing, a payment, or a dispute. Our sourcing and update cadence are documented on the methodology page — but the official IRS announcement is always the controlling authority.