Interest compounds daily and is typically added to any unpaid tax from the time the payment was due until the date the tax is paid. The rates are set by the IRS every three months at the federal short-term rate plus 3 percentage points.3
On June 4, 2020, the IRS cut its interest rate by 2 percentage points for the third quarter of 2020. For the third quarter of 2020, the interest rate is 3% on tax balances due to the IRS. This is down from 5% during the first two quarters of the year.6
The applicable quarterly interest rate is charged for each quarter, so taxpayers will still pay a higher percentage on first and second quarter 2020 balances. The third quarter ruling isn’t retroactive.
The IRS will also pay 3% interest on late refunds, although this rarely happens because the IRS has “administrative time” of about 45 days if you file on or after the due date to process your return and issue a refund.