IRS Updates Interest Rates for Tax Underpayments and Overpayments for Q1 2026

What Individuals and Businesses Need To Know Under Notice 2025-50

The IRS has released Notice 2025-50, announcing the official interest rates that will apply to tax underpayments and overpayments during the first calendar quarter of 2026. These rates affect nearly every taxpayer category, from individual filers to corporations, tax exempt organizations, and large corporate taxpayers. They also govern how interest accrues on refunds, amended returns, late payments, and IRS assessments.

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Interest Rates for Q1 2026

Beginning January 1, 2026, the IRS interest rates will be:

• Individuals

  • Overpayments: 7 percent

  • Underpayments: 7 percent

• Corporations

  • Overpayments: 6 percent

  • Underpayments: 7 percent

  • Overpayments over 10,000 dollars: 4.5 percent

• Large corporate underpayments

  • 9 percent

As explained on page 2 of the notice, these rates are determined by taking the federal short term rate for October 2025 and applying statutory add ons based on taxpayer type.

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How the IRS Calculates the Rates

The notice confirms the statutory formula under section 6621:

• Individuals: federal short term rate plus 3 percentage points

• Corporations:

  • Underpayments: federal short term rate plus 3 points

  • Overpayments: federal short term rate plus 2 points

• Large corporate underpayments: federal short term rate plus 5 points

• Large corporate overpayment adjustments: federal short term rate plus one half of a point

These calculations are shown in the detailed tables and accompanying explanation on page 2.

The IRS compounding method remains daily compounding, which affects total interest owed or credited over time.

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When These Rates Apply

The interest rates announced in Notice 2025-50 apply to:

• Refunds issued for returns filed for tax years prior to 2026

• Amended return refund interest calculations

• Underpayment penalties and interest on unpaid tax balances

• Interest assessed during audits or IRS adjustments

• Corporate estimated tax underpayments

• Carryback claim calculations

Interest continues to accrue until full payment is made or the refund is processed.

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Why These Rates Matter for Taxpayers

IRS interest rates directly influence:

• The cost of paying a tax bill late

• The time value of money when the IRS owes you a refund

• Financial reporting for corporations subject to ASC 740

• Estimated tax planning for individuals, pass throughs, and C corporations

• Tax strategy decisions involving amended returns and tentative refund claims

• Cash flow management for businesses with ongoing IRS controversies

For large corporations, the difference between the standard corporate rate and the 9 percent large corporate underpayment rate can create substantial additional liability.

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Interest on Large Corporate Underpayments

Large corporate underpayment interest applies when a corporation owes more than 100,000 dollars in tax for a particular period. Notice 2025-50 confirms the Q1 2026 rate for these balances is 9 percent, reflecting a substantial five point statutory add on.

This higher rate is a significant consideration for:

• Corporations involved in IRS examinations

• Businesses with transfer pricing adjustments

• Groups with complex consolidated return corrections

• Companies evaluating the timing of payments to reduce interest exposure

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Interest on Corporate Overpayments Above 10,000 Dollars

Corporations that are owed a refund of more than 10,000 dollars receive a lower interest rate of 4.5 percent, as shown in the notice. This reduced rate applies only to the portion of the overpayment exceeding the 10,000 dollar threshold.

This rule impacts:

• Overpayments from tentative refund applications

• Corporate estimated tax true ups

• Overpayments discovered on amended returns

• Refunds generated by net operating loss carrybacks

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How Margen Helps Taxpayers Apply IRS Interest Rates Correctly

Understanding which interest rate applies and how it affects tax liabilities can be complex, especially for corporations and individuals dealing with amended returns or IRS assessments. Margen makes this easier by helping taxpayers answer questions such as:

• "What interest rate applies to an unpaid 2024 tax balance paid in March 2026?"

• "How much interest will I owe if my corporation receives an assessment next quarter?"

• "Does my company qualify for the 4.5 percent overpayment rate or the 6 percent rate?"

• "How do daily compounding rules affect my total liability?"

• "What rate applies if multiple tax years are involved in an audit adjustment?"

Margen automatically references the latest IRS notices and applies the correct statutory formulas, ensuring your interest calculations are accurate and helping you plan for tax payments and refunds with confidence.

For full details, see IRS Notice 2025-50.