Due to interest rates and inflation rapidly increasing, the Internal Revenue Service (IRS) has increased their interest rates for the third quarter. The reason for this increase is due to the rate of inflation being at its highest in the last 40 years.
The Federal Reserve has been slowly raising interest rates in increments in order to bring down inflation with the hope of avoiding a recession. The IRS previously increased rates during the second quarter of this year as inflation was rising. The IRS rates for the second quarter were 4% for overpayments, 1.5% for the portion of a corporate overpayment exceeding $10,000, 4% for underpayments, and 6% for large corporate underpayments.
The third quarter increase will take place effective July 1, 2022. The rates will be as follows:
- 5% for overpayments
- 4% for corporate overpayments
- 2.5% for the portion of a corporate overpayment exceeding $10,000
- 5% for underpayments
- 7% for large corporate underpayments
Under the Tax Code, interest rates are determined on a quarterly basis. The new third-quarter rates are calculated by using the federal short-term rate that took effect as of May 1, 2022.
To announce the rate increase, the IRS provided Revenue Ruling 2022-11. If you have any questions on how you may be affected by this increase, reach out to your tax preparer today!
