The IRS has announced that the interest rate it charges for underpayments of tax (including estimated tax payments) has increased from 6% to 7% beginning January 1, 2023. This is the fourth quarter in a row that IRS has raised its interest rate by a full percentage point. (Rev. Rul. 2022-23). One year ago on January 1, 2022, the interest rate was only 3%.

IRS interest is compounded daily. This means that interest accrues on the previous balance plus interest on the previous balance. At 7%, it will be more important than ever before to pay your taxes on time. The same 7% interest rate accrues on refunds not received within 6 weeks of filing a return and on certain overpayments, such as from amended returns.