Why the Rate Changed

The Internal Revenue Code requires that the IRS review its interest rate quarterly in order to keep pace with the economy. This doesn’t mean that the rate always changes quarterly. It won’t change if there hasn’t been a big swing in the national economy, but that’s not the case in 2020 with the recession that began in February and the coronavirus pandemic. 

In simplest terms, the IRS interest rate is the federal short-term rate plus 3 percentage points, rounded up to the nearest percentage point. This puts the third quarter 2020 short-term rate at about 0%. Technically, it was 0.25% in May 2020, the month used in the IRS calculations.

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