IRS Interest Rates

The IRS recently announced the interest rates for the first quarter of 2025 that will be charged on  underpayments for the first quarter of 2025.  Taxpayers who have past due or unpaid taxes will be charged an annual rate of interest of 7% for the first quarter of 2025.  The current rate is 8% per annum.

In addition to interest, taxpayers with past-due taxes also face late payment penalties of 0.5% on the tax owed.  The late payment penalties are capped at 25% of the tax owed.  Taxpayers who filed their tax returns late may also face a late filing penalty of up to 25% of the tax owed. 

There is not much most taxpayers who have unpaid taxes can do to eliminate interest on past due taxes.  The IRS may excuse late payment, late filing, and some other penalties if a showing of reasonable cause can be made.  Reasonable cause may include circumstances such as a severe illness, a death in the family, bad accounting advice, financial hardships, and many other circumstances.  However, there are very few ways to excuse interest.  In short, the government does not issue interest free loans on your past due taxes. 

The best way to combat interest and penalties is to be proactive with the IRS.  Taxpayers with a tax debt should make whatever payments they can afford.  Not only will payments prevent interest and penalty from accruing, but making payments may put a taxpayer in better position to argue that their penalties should be excused.  Showing that the taxpayer took corrective action will be helpful to taxpayers when arguing their penalties should be abated for reasonable cause.  Taxpayers who make payments (especially large payments) are more likely to have their penalties reduced then taxpayers who make no attempt to make amends. 

At RJS LAW, we help people who have past due taxes and unfiled returns get back into the good graces of the IRS.  Not only do we help people make payment arrangements with the IRS, but we also help many of our clients abate penalties.  Please contact us at RJS LAW or call 619-595-1655 for a free consultation if you owe back taxes, are receiving demand letters, and/or just need tax related help.   We will give you candid and accurate advice as to what your potential options are. 

Written by Joseph Cole. Esq. LL.M.