IRS Reveals Interest Rates for Underpayment of Taxes for Q2 2024

The Internal Revenue Service (IRS) building in Washington on June 28, 2023. Madalina Vasiliu/The Epoch Times

The Internal Revenue Service (IRS) has announced what its various interest rates will be for the second quarter of 2024, including the rate applied for underpayment of taxes.

The Internal Revenue Code requires that the tax agency calculate and make public the rate of interest for overpayment and underpayment of taxes every quarter. The interest rates are calculated from the federal short-term rate determined in January 2024, in line with the latest revenue ruling.

Accordingly, the IRS said in a Feb. 21 notice that, for the calendar quarter beginning on April 1, 2024, the interest rates will remain the same as for the prior quarter.

For individual taxpayers, the rate for overpayments and underpayments will be 8 percent per year, compounded daily.

For corporations, the rate for overpayments will be 7 percent, dropping to 5.5 percent for the portion of a corporate overpayment exceeding $10,000.

Large corporate underpayments will carry an interest rate of 10 percent.

In general, the overpayment and underpayment rate for taxpayers other than corporations is the federal short-term rate plus three percentage points.

The rate for large corporate underpayments is the federal short-term rate plus five percentage points.

For the portion of a corporate overpayment of tax exceeding $10,000, the rate is the federal short-term rate plus one-half of a percentage point.

After holding rates steady for most of 2023, the IRS announced in August that it would raise rates for the final quarter of the year, starting on Oct. 1, 2023, with recent announcements carrying those same rates over to the first and second quarters of 2024.

IRS Waives Failure-to-Pay Penalties

In other tax-related developments, the IRS said at the end of December that it would provide failure-to-pay penalty relief for roughly 4.7 million taxpayers who didn’t receive automated collection reminder notices.

The $1 billion or so in total penalty relief would be granted to certain individual taxpayers, businesses, and tax-exempt organizations, for the taxable years 2020 and 2021, the tax agency said in a Dec. 19 announcement.

The taxpayers eligible for the relief are those who did not receive automated reminders from the IRS to pay overdue tax bills when the agency temporarily suspended the mailing of such notices in February 2022 “due to the unprecedented effects of the COVID-19 pandemic.”

Normally, these reminders would have been sent as a follow-up after an initial notice but the IRS didn’t send them out because it was swamped by a backlog of millions of original and amended tax returns filed at the height of the pandemic that the agency was unable to process.

The tax relief is automatic but applies only to eligible taxpayers who owe less than $100,000 in back taxes. The failure-to-pay penalty will resume on April 1, 2024, for those taxpayers who are eligible for the relief.

Taxpayers who are eligible for the automatic relief include individuals, businesses, trusts, estates, and tax-exempt organizations that filed certain tax forms, including 1040, 1120, 1041, and 990-T income tax returns.

Enforcement Crackdown

While the IRS has provided relief to some taxpayers, others face more scrutiny.

As part of its ongoing efforts to boost tax compliance in high-income categories, the IRS said on Feb. 21 that it will launch dozens of tax audits involving personal use of business aircraft.

Corporate aircraft are often used for both business and personal travel, with personal use of business jets impacting eligibility for certain deductions.

The tax code allows business deductions for the expense of maintaining assets like corporate planes. However, the use of such aircraft for personal travel generally reduces the amount that can be claimed. Also, personal use of a business jet should normally be included in the income of the individual traveling, with implications for the amount of taxes owed.

The IRS said that there hasn’t been enough scrutiny of whether, for tax purposes, the use of jets is being properly allocated between business and personal reasons, and so the agency is ramping up enforcement in this area.

Separately, the IRS announced last summer that, thanks to a new $60 billion funding boost, it was launching a “sweeping, historic” tax enforcement initiative using artificial intelligence (AI) and other cutting edge technologies to crack down more effectively on non-compliant taxpayers.

The agency is now putting some of those high-tech enforcement tools to use, and is hiring more examiners, in part to ensure that corporate fliers that do so for personal reasons pay enough tax.

In October, the IRS announced four new initiatives targeting high-income, high-wealth individuals, and large corporations.

Meanwhile, a recent report from the Treasury Inspector General for Tax Administration, which is the watchdog overseeing the IRS, indicated that the IRS managed to rake in a record $4.9 trillion in taxes from Americans in the last fiscal year. The record-high intake was in large measure due to automated collections processes and aggressive audits.

While the IRS is set to continue increasing its reliance on automated systems to squeeze more tax dollars from American taxpayers, it’s also looking to hire another 3,700 tax enforcers as it spends an extra $46 billion of the recent $60 billion funding boost on enforcement.