On Nov. 18, the IRS announced that interest rates will decrease for the calendar quarter starting  Jan. 1, 2025. For individuals, the rate for overpayments and underpayments will be 7% per year, compounded daily. 

The Revenue Ruling 2024-25 laid out the interest rates that will appear in Internal Revenue Bulletin 2024-49 dated Dec. 2, 2024. In the Table of Interest Rates contained in the ruling, there were some noteworthy trends. One of them is it is the first time since the third quarter of 2020 that interest rates for tax overpayments and underpayments will be lower than the previous quarter. Additionally, it is also the first time since the third quarter of 2023 that interest rates will not be at 8% for individuals.

The complete list of the new rates is as follows: 

• 7% for overpayments (payments made in excess of the amount owed), 6% for corporations. 

• 4.5% for the portion of a corporate overpayment over $10,000. 

• 7% for underpayments (taxes owed but not fully paid). 

• 9% for large corporate underpayments. 

The rate of interest is determined quarterly under the Internal Revenue Code. For taxpayers aside from corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. 

Generally, 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 rate on the portion of a corporate overpayment of tax over $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point. 

The interest rates announced are computed from the federal short-term rate determined during Oct. 2024. See the above revenue ruling for details.