The Internal Revenue Service is willing to stay the course on interest rates, announcing rates for the third quarter of 2021 will be just the same as the previous two quarters.
The Internal Revenue Code mandates the rate of interest to be determined on a quarterly basis—and the Q3 rates are here:
- 3% for individual overpayments
- 2% for corporate overpayments
- 5% for the portion of a corporate overpayment exceeding $10,000
- 3% for underpayments
- 5% for large corporate underpayments
Taxpayers who aren’t corporations have a simple calculation to figure the applicable rate of interest. Since those taxpayers’ overpayment and underpayment rates are the same, either rate will be the sum of the federal short-term interest rate plus 3 percentage points.
Corporations tend to have lower interest rates for overpayments—especially large ones—and large corporations have a higher rate for underpayments.
"Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points," the IRS explains. "The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point."
What separates the large corporation from the not-so-large corporation is spelled out in the instructions for Form 2220, Underpayment of Estimated Tax by Corporations:
“A large corporation is a corporation (other than an S corporation) that had, or whose predecessor had, taxable income of $1 million or more for any of the 3 tax years immediately preceding the 2020 tax year, or if less, the number of years the corporation has been in existence.”
The IRS will make these rates official with Revenue Ruling 2021-10, which will announce the rates of interest. The ruling is expected to be included in Internal Revenue Bulletin 2021-25, due out June 21.