IRS Announces Interest Rates Will Remain the Same for Q4 2025

On August 25, 2025 (IR-2025-87), the IRS announced that federal interest rates for tax overpayments and underpayments will remain unchanged for the fourth quarter of 2025, which begins October 1, 2025.

For many taxpayers, this announcement means stability—but it also serves as a reminder that interest charges on unpaid taxes (or credits for overpayments) can significantly impact your tax bill.

Here’s what you need to know.

IRS Interest Rates for Q4 2025

The IRS uses quarterly interest rates to calculate both the amount you owe if you underpay your taxes and the amount you can earn back if you overpay.

For Q4 2025 (Oct. 1–Dec. 31, 2025):

• 7% for overpayments (payments made in excess of what’s owed), compounded daily.
• 6% for corporate overpayments.
• 4.5% for the portion of a corporate overpayment exceeding $10,000.
• 7% for underpayments (taxes owed but not fully paid).
• 9% for large corporate underpayments.

These rates are calculated based on the federal short-term rate plus a margin, which is set by the Internal Revenue Code.

Why This Matters to Individuals

If you’re a freelancer, small business owner, or even a W-2 employee who doesn’t pay enough through withholding, the 7% underpayment rate means the IRS charges you interest if you owe taxes and don’t pay on time.

Example 1:  You underpay your taxes by $5,000 and don’t resolve the balance for one year. At 7% interest, you could owe about $350 in interest—on top of penalties.

Example 2:  On the other hand, if you accidentally overpaid by $3,000 when filing your 2024 return, the IRS will pay you 7% interest, compounded daily, until your refund is processed.

That’s higher than most savings accounts—though of course, no one should intentionally overpay just to earn interest.

Why This Matters to Corporations

Corporations face different rates, and the IRS distinguishes between regular and large corporate underpayments.

Corporate Overpayment Example:  A corporation that overpays $15,000 in taxes will receive 6% on the first $10,000 and only 4.5% on the remaining $5,000.

Corporate Underpayment Example:  A large corporation that underpays taxes by $100,000 may face a 9% interest charge, compounded daily, until the debt is resolved.

For corporations managing cash flow, these interest charges (or credits) can make a big difference in financial planning.

Key Takeaways for Taxpayers

1. Interest is daily, not yearly. Unlike a typical loan, IRS interest compounds daily, which means balances can grow quickly.

2. Underpayment can get expensive. Even if 7% doesn’t sound like much, when combined with late-payment penalties, the total cost of unpaid taxes can skyrocket.

3. Overpayments can earn you money. While not a reason to intentionally overpay, if you are due a refund, the IRS does compensate you with interest until it’s issued.

4. Plan ahead for quarterly taxes. Self-employed individuals and freelancers can avoid underpayment interest by making timely estimated tax payments.

5. Businesses should monitor large balances. Especially corporations, since the IRS charges 9% on large underpayments.

What You Can Do Now

1. Double-check withholding or estimated payments before the year ends. If you expect to owe a significant balance, making an estimated payment now can help you avoid that 7% interest rate.

2. Don’t ignore IRS notices. Even small underpayments can grow quickly once daily compounding is factored in.

3. Work with a CPA. An experienced Los Angeles tax advisor can help you manage cash flow, avoid costly interest, and ensure compliance with IRS rules.

Bottom Line

For the fourth quarter of 2025, IRS interest rates stay the same: 7% for individuals and most small businesses, 6% for corporations, and 9% for large corporate underpayments.

Whether you’re an individual taxpayer or managing a corporation, understanding how these rates apply can help you avoid unnecessary costs—or maximize the benefit if you’re owed a refund.

Need Help Managing Taxes and Avoiding IRS Interest?

At Velin & Associates, Inc., we help freelancers, small business owners, and corporations in Los Angeles navigate complex tax rules, minimize underpayment risks, and plan strategically. Don’t let interest and penalties eat into your income.

📍 Velin & Associates, Inc.
8159 Santa Monica Blvd STE 198/200
West Hollywood, CA 90046
📞 323-902-1000
📧 dmitriy@losangelescpa.org