The IRS Will Charge 7% on Underpayments Through Year-End — and Pay the Same on Refunds

The Internal Revenue Service said on August 21 that it will not change the interest rates it charges and pays for the quarter that begins October 1, 2026. For individual taxpayers the rate stays at 7% a year, applied both to what the government owes you and to what you owe the government.

The four rates

The announcement, IR-2026-98, sets out separate rates by taxpayer type. They take effect October 1, 2026.

• Individuals, overpayments: 7% per year.
• Individuals, underpayments: 7% per year.
• Corporations, overpayments: 6% per year.
• The portion of a corporate overpayment exceeding $10,000: 4.5% per year.
• Large corporate underpayments: 9% per year.

The symmetry at the individual level is worth noticing. A taxpayer who underpays and a taxpayer who overpays are treated to the same rate. At the corporate level they are not: a corporation earns 6% on money the government held, and a large corporate underpayment costs 9%.

Where the number comes from

The IRS says the rates announced are computed from the federal short-term rate determined during July 2026. That rate is set quarterly from market yields on short-dated Treasury obligations, and the statutory rates are built off it. The release itself does not print the underlying short-term rate.

The formal guidance is Revenue Ruling 2026-15, which the IRS says will appear in Internal Revenue Bulletin 2026-36, dated August 31, 2026.

How 7% compares with the market

The Federal Reserve’s H.15 release dated August 21, 2026 gives the market backdrop. As of August 20, the effective federal funds rate stood at 3.63% and the bank prime loan rate at 6.75%. Treasury constant-maturity yields ran from 3.87% at three months to 4.19% at two years, 4.69% at ten years and 5.23% at thirty.

So the 7% the IRS charges an individual on an underpayment sits above every point on the nominal Treasury curve, and just above the posted prime rate. That is a description of where the numbers happen to fall this quarter, not a claim about how anyone should arrange their affairs.

What to watch

The next quarterly announcement, which will cover the quarter beginning January 1, 2027, and whether the federal short-term rate determined in October 2026 moves enough to break the streak.