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The IRS recently announced it would be raising interest rates beginning July 1 for overpayments and underpayments of quarterly taxes. 

The move affects corporations, 1099 independent contractors, and self-employed people who must pay quarterly estimated taxes. IRS Interest rates, which are calculated quarterly based on the federal short-term rate, will be as follows in Q3: 

  • 5% for overpayments by individuals 
  • 4% for overpayments by corporations 
  • 2.5% for corporate overpayments greater than $10,000 
  • 5% for underpayments by individuals 
  • 7% for large corporate underpayments 

Under the Tax Code, the interest rate for taxpayers other than corporations is the federal short-term rate plus 3 percentage points for both overpayments and underpayments. 

For corporations, 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 rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The interest rate on the portion of a corporate overpayment exceeding $10,000 is the federal short-term rate plus half a percentage point. 

The law requires taxpayers to pay a certain percentage of their taxes throughout the year, except for W-2 employees who have this money automatically deducted from their paychecks in the form of payroll taxes. Independent contractors, however, are responsible for paying their fair share of taxes throughout the year. 

Sole proprietors, partners in a business, and business owners who file taxes as S-corporations must pay quarterly taxes if they expect to owe at least $1,000 in April when tax returns are due. That amount is $500 for a C-corp. 

For more information, go to the IRS website.