IRS Lowers Interest Rates For First Time Since January
The Internal Revenue Service has posted its new interest rates for the fourth quarter of 2003. The rates are lower across the board, which should make people owing back taxes happy. People receiving overdue tax refunds from the federal government will find that the interest they receive is going down as well.
New interest rates go into effect October 1, 2003. Here are the new interest rates compared to their predecessors:
- Tax overpayments owed to individuals: 4%, down from 5%
- Tax overpayments owed to corporations: 3% down from 4%
- Tax underpayments owed to the IRS: 4% down from 5%
- Tax underpayments owed to the IRS by large corporations: 6% down from 7%
- Tax overpayments in excess of $10,000 owed to corporations: 1.5% down from 2.5%
Taxpayers whose federal income tax refund has not been paid within 45 days of the due date of the tax return, including extensions, are entitled to receive interest on the refund at the overpayment rate. Interest is calculated from the due date of the return or the date you filed the return, whichever is later. The interest is taxable!
The IRS bases its interest rates on a formula that is based on a sum of the federal short-term interest rate plus a fixed number of percentage points, depending on whether it is an over- or an underpayment. The current rates are based on the July 2003 federal short-term interest rate rounded to the nearest full percent, in this case 1%.
The new interest rates are published in Revenue Ruling 2003-104, which includes a complete history of IRS interest rates since July 1975.