IRS Interest on Unpaid Taxes

How IRS interest on unpaid taxes works

Under IRC 6601(a), if tax is not paid by the last date set for payment, interest runs from that date until the day it is paid. For most individuals that date is the original April due date of the return. Three rules shape the bill:

• Extensions don’t help with interest. The IRS says an extension to file “does not extend the date for payment of the tax”, and IRC 6601(b)(1) adds that a payment plan does not move the date either.
• It compounds daily. IRC 6622 requires interest to be compounded daily. The IRS explains that interest is charged on the previous day’s balance plus the interest already added.
• It runs until the balance is zero. Interest keeps accruing during a payment plan, hardship status and appeals. The IRS interest page says interest “will continue to accrue daily on any amount not paid, including on both penalties and interest.”

One exception helps if you act quickly: when you get a bill, you are not charged more interest on the amount shown if you pay it in full by the “pay by” date on the notice (IRC 6601(e)(3) allows 21 calendar days from the notice for most bills). The first bill is usually a CP14; the IRS says interest accrues on the unpaid amount after its date. Reminders such as the CP501 and CP503 show the interest charged so far in the bill summary.

The IRS interest rate for 2026

The underpayment rate is the federal short-term rate plus 3 percentage points (IRC 6621(a)(2)). Treasury sets the short-term rate each quarter and rounds it to a whole percent, so the IRS rate changes at most four times a year. A new rate applies only to the quarter it covers; it does not change interest already charged for earlier quarters.

The October to December rate was announced in IR-2026-98 (IRS.gov, Q4 2026), which also confirmed that the federal short-term rate behind it is 4% (IRS.gov, Jul-Dec 2026). For individuals, the rate the IRS pays on overpayments is the same as the rate it charges. C corporations with large underpayments pay a higher rate: the short-term rate plus 5 percentage points. Current and past rates are on the IRS quarterly interest rates page.

What the IRS charges interest on, and from when

The IRS charges interest on any unpaid tax, penalties, additions to tax and interest. The start date depends on what is being charged:

So a late return that also wasn’t paid carries interest on the tax and on the failure-to-file penalty from the same early date. The failure-to-pay penalty starts drawing interest once it has been billed and left unpaid. If you are not sure which items make up your balance, our guide to finding out exactly how much you owe and the account transcript guide show where each charge appears.

Worked example: how a balance grows in one year

1. Daily interest. $8,000 x 7% / 365 = about $1.53 on day one. Because of daily compounding, each day’s charge is slightly larger than the last.
2. Interest for the year. Compounded daily for 365 days, the interest comes to about $580. Simple interest would be $560; compounding adds about $20.
3. Failure-to-pay penalty. 0.5% (IRS.gov, 2026) of the unpaid tax for each month or part of a month: $8,000 x 0.5% x 12 = $480.
4. Balance after one year. $8,000 + $580 + $480 = about $9,060, before the smaller amount of interest charged on the penalty after it is billed.

In this example, interest and the penalty add about 13% to the bill in a year. If the rate changes, the interest changes with it. The failure-to-pay penalty keeps adding up until it reaches its 25% (IRS.gov, 2026) cap after 50 months, while interest has no cap. For your own numbers, try our penalty and interest calculator.

How penalties add to the interest

Interest is not a penalty, but it is usually charged alongside two of them. The failure-to-file penalty is 5% (IRS.gov, 2026) of the unpaid tax per month, up to 25% (IRS.gov, 2026), so filing on time even when you can’t pay usually saves far more than it costs. The failure-to-pay penalty drops to 0.25% (IRS.gov, 2026) a month while an approved payment plan is in effect, if you filed on time; interest does not drop.

For the details, read failure to file vs. failure to pay penalties and the five types of IRS penalties and how to fight each one.

Can IRS interest be removed or reduced?

Interest is required by law, so the routes are narrow. The IRS lists them on its interest and interest abatement pages:

• Reduce what it is charged on. If you lower the tax with an amended return or the IRS removes a penalty, “we’ll automatically reduce the related interest.” That makes penalty relief, including the new Automatic Exemption from Penalty, the most common way to cut interest. If you think the tax itself is wrong, see how to dispute an IRS balance.
• No abatement for reasonable cause. The IRS says: “We don’t remove or reduce interest for reasonable cause or as first-time relief.”
• IRS error or delay (IRC 6404(e)). The IRS may abate interest caused by an employee’s unreasonable error or delay in a ministerial or managerial act, after the IRS contacted you in writing, where you did not contribute to the delay. Only interest for the period of the delay qualifies, and not on employment taxes. Request it on Form 843 or by signed letter within 3 years of filing the return or 2 years of paying the tax, whichever is later. If the IRS refuses, you can appeal, and some taxpayers can ask the Tax Court to review the refusal (IRC 6404(h)).
• Late IRS notices (IRC 6404(g)). If you filed an individual return on time and the IRS did not send a notice stating an additional liability within 36 months, interest on that additional amount is suspended from the end of the 36 months until 21 days after the notice. It does not apply to tax shown on your return, fraud or failure-to-file and failure-to-pay penalties.

How to stop the balance from growing

1. Pay what you can now. Every dollar paid stops interest and the failure-to-pay penalty on that dollar. If a notice gives a “pay by” date, paying the full amount by then avoids further interest on it.
2. File every return, even if you can’t pay. It stops the larger failure-to-file penalty from growing.
3. Set up a payment plan for the rest. It doesn’t stop interest, but it cuts the failure-to-pay penalty rate and stops collection while it is in effect. Our relief by balance size guide shows which plan fits, and how to pause collection explains what each option does and doesn’t stop.
4. Ask for penalty relief. Removing a penalty removes the interest on it too.
5. Don’t wait for the final notice. Ignored bills move toward a notice of intent to levy, and the failure-to-pay penalty rises to 1% (IRS.gov, 2026) a month starting 10 days (IRS.gov, 2026) after that notice. If you already have one, use the 30-day final notice plan.

All of this can be done yourself through your IRS Online Account, and free help is available from the Taxpayer Advocate Service and Low Income Taxpayer Clinics. Not sure what your notice means? Get a free review or call 1-877-800-8180.

Frequently asked questions

Keep reading in the Tax Liability Guide

• How much do you owe the IRS?Find today's payoff, including accrued interest.
• Penalty and interest calculatorEstimate what your balance will grow to.
• IRS penalty reliefRemove a penalty and the interest on it goes too.
• Relief by balance sizeWhich payment option fits what you owe.
• Pause IRS collectionWhat each pause stops, and what keeps running.