The IRS announced it will maintain current interest rates for the first quarter of 2026, keeping the rate at 7% annually for individual taxpayers who owe money or are owed refunds. The rates, which take effect January 1, 2026, represent a continuation of the current structure that has been in place since early 2025.

For individuals, this means any taxes owed but not paid will accrue interest at 7% per year, compounded daily. The same 7% rate applies to overpayments when the IRS owes you a refund. Corporate rates vary slightly, with most businesses facing 7% on underpayments and 6% on overpayments, while large corporate underpayments face a higher 9% rate.

The announcement, detailed in Revenue Ruling 2025-22, follows the IRS’s quarterly review process. Interest rates are calculated using the federal short-term rate determined in October 2025, plus statutory add-ons that typically range from 2 to 5 percentage points depending on the taxpayer type and situation.

These rates remain significant for business owners and high earners who may face substantial tax obligations or receive large refunds. The daily compounding feature means that unpaid balances can grow quickly over time, making timely tax payments particularly important for financial planning.

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Impact on Business Owners and High Earners

The 7% interest rate environment creates both opportunities and risks for taxpayers with substantial financial obligations. For business owners who underpay estimated taxes, the cost of carrying a balance with the IRS often exceeds traditional financing options, making accurate quarterly payments essential for cash flow management.

Conversely, taxpayers expecting large refunds will earn 7% annually on overpayments, though tax professionals generally advise against intentionally overpaying to earn this interest due to liquidity constraints and uncertain refund timing. The key is finding the right balance between avoiding underpayment interest while maintaining working capital flexibility.

Self-employed individuals and business owners should pay particular attention to estimated tax requirements, as underpayments can quickly accumulate both interest and penalties. The combination of 7% interest plus potential failure-to-pay penalties of 0.5% per month can create substantial additional costs beyond the original tax obligation.

What the Rate Stability Means

The decision to maintain rates reflects the current federal interest rate environment and provides predictability for tax planning purposes. Since the IRS reduced rates from 8% to 7% in early 2025—the first decrease since 2020—the stability suggests the agency sees no immediate need for further adjustments based on economic conditions.

This rate environment particularly affects strategic decisions around retirement account contributions and tax timing. Business owners considering large Solo 401k contributions or other tax-advantaged strategies can factor the known 7% cost of underpayment when evaluating the timing of major financial moves.

The IRS determines these rates quarterly based on federal short-term rates, meaning future quarters could see adjustments if broader interest rate conditions change significantly. However, the current structure provides a clear framework for first-quarter planning and beyond.

Source: Interest rates remain the same for the first quarter of 2026 | IRS.gov