October is just a month away, so it’s time once again for an important announcement by the Internal Revenue Service: The federal fourth quarter interest rates. Despite the seasons changing, it looks like rates are staying the same.

What are the federal interest rates for tax overpayment and underpayment in Q4 2021?

The IRS this week published Revenue Ruling 2021-17, detailing the Q4 tax overpayment and underpayment interest rates for individuals and corporations from October 1, 2021, to December 31, 2021:  

• 3% for overpayments (2% in the case of a corporation)
   
• 0.5 % for the portion of a corporate overpayment exceeding $10,000
   
• 3% percent for underpayments
   
• 5% percent for large corporate underpayments

According to the release, the September 13 Internal Revenue Bulletin will feature the revenue ruling that outlines the Q4 interest rates.

How are the quarterly interest rates calculated?

The IRS calculates the quarterly overpayment and underpayment rates by adding a number of percentage points to the short-term rate, based on whether it’s for a taxpayer or corporation:

Quarterly Overpayment Interest Rates

• Short-term rate plus 3 percentage points for individual taxpayers
• Short-term rate plus 2 percentage points for corporations
• Short-term rate plus 0.5 percentage points for corporations overpaying by more than $10,000 in a taxable period

Quarterly Underpayment Interest Rates

• Short-term rate plus 3 percentage points for individual taxpayers and corporations
• Short-term rate plus 5 percentage points for large corporations

As for changes in the quarterly rate, the IRS predictably bases them on data gathered from the preceding quarter: “The interest rates announced today are computed from the federal short-term rate determined during July 2021 to take effect August 1, 2021, based on daily compounding.”

Source: IR-2021-173