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IRS to Raise Interest Rates for Q1 2023

In an announcement made on Tuesday, the Internal Revenue Service said that interest rates for the 1st quarter of 2023 (Jan. 1) will be increasing. This is due to the near 40-year highs of inflation the country has experienced over the last year. For individuals, the overpayment and underpayment rate will be 7% per year, compounded daily, which is 1% higher than the 6% for the quarter that started on October 1st.

Other New Interest Rate Hikes

Some other items on the list that was announced by the IRS include:

– 7% for overpayments (payments made more than the amount owed), 6% for corporations;

– 4.5% for the portion of a corporate overpayment exceeding $10,000;

– 7% for underpayments. (taxes owed but not fully paid); and,

– 9% for large corporate underpayments.

Corporate Rates

Underpayment rates for corporations are typically three percentage points higher than the federal short-term rate, while overpayment rates are two percentage points higher than the federal short-term rate.

An underpayment rate of 5 percentage points added to the federal short-term rate applies to large corporations. The rate on the part of a corporate overpayment of tax over $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

Revenue Ruling 2022-23

Interest rates announced Tuesday by the IRS are based on the federal short-term rate determined in October. In Revenue Ruling 2020-23, the government provides detailed information on the interest rates for the first calendar quarter of 2023, underpayments, and overpayments, beginning Jan. 1. Specifically, the rate for overpayments will be 7%, and for underpayments, it will also be 7%. The rate-of-interest paid on the portion of a corporate overpayment exceeding $10,000 will be 4.5%.

Wrap Up

This increase in interest rate is the governments way of trying to combat the nearly 40-year high of inflation we have experienced over the past year. We can only hope this does the trick and can eventually give some much needed relief to Americans all across the country.

 
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