Interest Rates for 2025 - What You Should Know as a Taxpayer?

Do you owe back taxes? Or are you due a refund?

Understanding the IRS interest rates is essential for a taxpayer.

IRS rates are updated every quarter. For 2025, the rates have remained around 7%, slightly down compared to 2024.

At Tax Attorneys of America, we want you to stay proactive and informed to avoid unnecessary penalties. This article will break down the IRS interest rate for back taxes and what that means for you.

Interest Rates for Back Taxes in 2025

The IRS releases quarterly rates based on the federal short-term rate plus three percentage points. 

Here’s where they currently stand:

Quarter Underpayment Rate (Individuals)

• Q1 2025 (Jan 1 – Mar 31) 7%
• Q2 2025 (Apr 1 – Jun 30) 7%
• Q3 2025 (Jul 1 – Sep 30) 7%
• Q4 2025 (Oct 1 – Dec 31) To Be Announced

Note: The rate decreased from 8% in late 2024.

These back taxes or underpayment rates apply to overdue balances, estimated tax underpayments, and unpaid taxes. Interest is assessed on the previous day’s balances plus interest.

So the longer you wait, the more interest you may have to pay to the IRS.

Unsure of how much you owe? Tax Attorneys of America is here to help you navigate your back taxes and break down what you owe.

Why Are IRS Rates Important?

As a taxpayer, unresolved debt means interest. While the IRS has maintained a consistent interest rate in 2025, interest rates directly affect what you pay or receive from the IRS.

If You Owe Taxes: 

From the day after the filing deadline, there is a 7% interest on unpaid balances.

Note: Interest accumulates daily until the debt is settled with the IRS. Even if you have a payment plan, interest is a daily penalty.

If You’re Owed a Refund:

If you are owed a refund from the IRS, you can receive an overpayment. If the delay is typically over 45 days, the IRS pays you interest because of the delay.

The overpayment interest rate is typically the same rate or close to the underpayment rate for individuals. 

Individual vs Corporate Interest Rates

Interest rates differ are different for individual taxpayers and corporations. 

The standard is 7% for the underpayment rate for individuals. Corporations are subjected to additional rate adjustments. 

Underpayment Interest Rates

Underpayments are at 7% for individuals.

Interest rates are typically assessed at a 2% higher rate for corporations.

The rate for large corporations' underpayment is 9%. 

Overpayment Interest Rates

For overpayments, the IRS typically sets the rate at a lower interest for corporations than for individuals. 

These interest rates should be factored accordingly for corporations.

Own a small business structured as a corporation? Consult a tax pro to understand interest rates for your business and to estimate the cost of carrying a tax debt.

How to Minimize Interest and Penalties from the IRS

If you owe back taxes as an individual or corporation:

• File your tax return to avoid further penalties, even if you can’t pay
• Pay what you can to minimize penalties
• Settlement may be a better option with an Offer in Compromise
• Reasonable cause could allow for Penalty Abatement
• Avoid collection with an installment agreement

At Tax Attorneys of America, we help clients connect with a tax professional who can assist with IRS negotiations and reduce penalties when possible. 

Rate for the Last Quarter of 2025

Interest rates are tied to federal short-term rates, so they fluctuate depending on economic conditions. 

Fourth Quarter interest rates for 2025 are announced in October. So it’s important to stay updated or work with a tax pro who can keep you informed.

Conclusion: IRS Interest Rates Moving Forward

The interest rate will continue at 7% until September 2025, but interest will continue to add up if you owe the IRS. Don’t ignore your tax debt balance with the IRS. 

Contact Tax Attorneys of America today to schedule a free consultation.