Tax Debt Help - Interest Rate Falls

Interest Rate for Tax Underpayments Drops to 6%

The Internal Revenue Service has lowered the interest rate charged on balances owed to the agency to 6%. IRS interest rates fluctuate quarterly, and the 6% rate applies beginning on April 1, 2008. Previously, the interest rate for the first quarter of 2008 was 7%, and prior to that the interest rate was 8%.

Individuals who have outstanding balances with the IRS pay penalties and interest on the balance due. Besides interest, the IRS charges a late payment penalty of half a percent per month (0.5%) on any outstanding balance. If tax returns have not been filed, a penalty of 5% per month up to a maximum of 25% is assessed on the tax owed. Thus, people who are filing a return and want to figure out a payment plan can use a standard loan calculator to calculate how much their monthly payments could be, but will need to use a annual rate of 12% to calculate their payments (6% for the interest and another 6% for the late payment penalty).

This drop in interest rates by the IRS might make it easier for individuals facing balances to set up a more affordable payment plan. However, it would be wise to compare the effective rate on a payment plan (12%) to other lending possibilities to make sure they are paying the least amount of finance charges.

More information: Interest Rates Drop for the Second Quarter of 2008