IRS Raises Quarterly Interest Rates Back to 7%, Effective July 1
The IRS announced on May 18, 2026, that the interest rate on individual tax underpayments and overpayments will rise from 6% to 7% for the calendar quarter beginning July 1, 2026. Published in Internal Revenue Bulletin 2026-22 and the Federal Register, the increase reverses the one-point drop that took effect in Q2 and pushes the underpayment rate back to where it sat at the start of the year. For U.S. taxpayers abroad with late returns, installment plans, estimated tax obligations, or balances owed, that single percentage point matters because IRS interest compounds daily.
The new rates apply from July 1, 2026, through September 30, 2026.
What Are the New Q3 Interest Rates?
The full schedule from the IRS quarterly interest rates page:
| Interest category | Q2 2026 (Apr-Jun) | Q3 2026 (Jul-Sep) |
|---|---|---|
| Non-corporate overpayment (individuals) | 6% | 7% |
| Underpayment (corporate and non-corporate) | 6% | 7% |
| Corporate overpayment | 5% | 6% |
| GATT (corporate overpayment over $10,000) | 3.5% | 4.5% |
| Large corporate underpayment | 8% | 9% |
| IRC 6603 deposit (federal short-term rate) | 3% | 4% |
The IRS calculates these rates each quarter by adding three percentage points to the federal short-term rate for individual underpayments and overpayments. The federal short-term rate for April 2026, which determines the Q3 schedule, was 4%, so the headline rate was 7%.
Who Does This Affect?
The rate change touches several taxpayers Greenback works with:
- Late filers using Streamlined Filing Procedures, whose balance on prior-year returns accrues interest from the original due date until paid in full.
- Expats on IRS installment plans, where interest on the unpaid balance continues to accrue alongside any failure-to-pay penalty.
- Self-employed expats making quarterly estimated tax payments, whose underpayment penalty for any quarter is calculated at the underpayment rate in effect for that quarter.
- Anyone with a balance owed on an amended return, where additional tax accrues interest from the original return’s due date forward.
- Taxpayers awaiting a delayed refund, who actually benefit from the rate increase: the IRS pays 7% interest on refunds delayed past 45 days from the filing deadline.
What It Means for You
- Daily compounding makes the one-point bump add up faster than the headline suggests; on a $10,000 balance, the difference between 6% and 7% interest compounded daily is roughly $107 over a full year, and the gap grows from there because each day’s interest is added to the principal.
- The new rate applies only to interest accruing from July 1 onward; balances owed earlier still accrue at the rate in effect for each prior quarter, so any pre-July 1 payment locks in the lower 6% rate for that portion of the balance.
- Q2 estimated tax payments remain on the standard schedule; the deadline is June 15, 2026, for the April through May period, and any shortfall starts accruing at the new 7% rate as of July 1.
- Refund seekers gain a small upside; if your 2025 refund is still pending past 45 days from the filing deadline, the IRS now pays you 7% annual interest on it, compounded daily, through Q3.
What You Should Do Next
- Pay down any open IRS balance before July 1 if you can; interest accruing between now and June 30 is at 6%, and anything left unpaid after July 1 compounds at the new 7% rate.
- Make your Q2 estimated tax payment on time; the deadline is June 15, 2026, and the underpayment rate for any shortfall in that quarter will reflect the prevailing rate.
- Catch up on late filings now; the longer a balance sits, the more interest compounds, so a streamlined filing or a regular catch-up filing is cheaper sooner than later.
- Review your installment plan; if you are on an IRS payment plan, paying more than the minimum each month reduces the balance to which the new rate applies.
- Track the refund clock: if you filed by your deadline and have not received your refund within 45 days, you are owed interest at the new 7% rate from the 46th day forward.
If you are unsure how the rate change interacts with your specific balance or filing situation, an expat tax consultation can walk through your numbers and your options.
The Bottom Line
A one-percentage-point increase in IRS interest rates is not dramatic on its own, but it compounds daily and applies to any failure-to-file or failure-to-pay penalties already accruing on a late or underpaid balance. The cleanest move is to settle outstanding amounts before July 1, where possible, and to stay current on Q2 estimated payments through their normal deadlines.
Ready to Get Ahead of the New Interest Rate?
The information in this article is for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules are complex and change frequently. Consult a qualified tax professional regarding your specific situation before taking any action.
