The IRS will raise interest rates starting April 1
There are few bigger shocks than spotting the amount of taxes taken from your check each payday. The average person in the United States will eventually pay more than $525,000 just in taxes throughout their lives, according to fintech company Self Financial. And during tax season, which is currently underway, you could find yourself owing even more taxes when you file your return for a number of different reasons, from extra income to changes in your family structure from year to year. year. Now the IRS is warning that taxpayers could be charged more for one thing in particular, starting in April. Read on to find out what you should start preparing for next month.
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Theirs sent a notice on February 23, warning taxpayers of a price hike to come in the coming months. The tax agency said interest rates will increase for the calendar quarter beginning April 1, 2022. You can accrue interest on two types of payments: overpayment or underpayment. Thus, from April, overpayments will have an interest rate of 4%, except for companies which will earn a rate of 3% and a rate of 1.5% for the part of an overpayment business that exceeds $10,000. In terms of underpayments, the interest rate will increase to 4% overall and 6% for large corporate underpayments.
“Under the Internal Revenue Code, the interest rate is determined on a quarterly basis,” explains the IRS. The tax administration did not change the interest rates in this last trimester, which began on January 1, 2022. Before they were changed in April, the rates are currently 3% for general overpayments and 2% for corporate overpayments, with a rate of 0, 5% for the portion of a corporation’s overpayment that exceeds $10,000. The interest for underpayment is 3% at this time, except for large companies which have a rate of 5%.
Yes you are interested in case of underpayment, you will be charged more once April 1st is reached. The IRS charges underpayment interest when you don’t pay your tax, penalties, tax additions, or interest by the due date. As for the tax you owe, “late interest applies even if you file an extension,” warns the tax administration on its website. The deadline for filing 2021 tax returns and paying taxes for most taxpayers is April 18.
On the other hand, the date by which you must pay penalties and additions to your taxes in order to avoid accruing interest may vary depending on your penalty. According to the IRS, the non-filing penalty and accuracy penalties are due on the return due date or the extended return due date. Penalties for non-payment, estimated tax, and dishonoured checks are due on the date the tax administration sends you a notice or assesses the penalty.
“If you received a notice, you will not be charged interest on the amount shown if you pay the amount you owe in full by the ‘payment’ date,” the IRS says.
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However, rising interest rates are not bad news. If you face an overpayment, the IRS may owe you more money. The tax agency will pay interest if you overpay, from the due date of your tax return, from a late receipt date of the tax return, from the date they receive your return within a format they can process or the date the payment was made, whichever date is later.
There is one exception. If the IRS refunds your overpayment to you within the set administrative time limit (which is usually 45 days), it may not have to pay interest. “We stop paying interest on overpayments on the date we refund your overpayment (and interest) or set it off against an unpaid liability,” the agency notes.
When it comes to owing underpayment interest to the IRS, the best thing to do is simply pay it in full. Depending on the tax agency, your interest will stop accumulating daily once you’ve paid off your balance in full. If you are unable to pay your full taxes on time, the IRS advises you to pay what you can and then apply for a payment plan.
You also have the option of potentially reducing the interest you owe. Filing an amended return or qualifying for penalty relief may reduce the amount of tax or penalties you owe, which in turn will cause the IRS to automatically reduce any related interest. “We do not waive or reduce interest for reasonable cause or as first relief,” the agency warns.
The IRS can also “reduce the amount of interest you owe only if interest is charged because of an error or unreasonable delay by an IRS officer or employee.” But to qualify for this reduction, you will need to dispute the interest you owe by submitting Form 843 or sending the IRS a signed letter asking them to reduce or adjust the overcharged interest.
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