IRS Interest Rate at 7% for Q1 2026: What Does It Mean?

The Internal Revenue Service (IRS) announced that interest rates on tax overpayments and underpayments will remain unchanged for the calendar quarter beginning January 1, 2026. This announcement is part of the Internal Revenue Bulletin 2025-48 published today, November 24, 2025.

Revenue Ruling 2025-22 confirmed that for individual taxpayers, the interest rate for both overpayments (refunds) and underpayments (taxes owed) will be maintained at 7 percent per year, compounded daily. This means those receiving refunds will earn interest at this rate, and those with balances due will pay interest at this rate.

These rates are calculated from the federal short-term rate (FSTR), which was determined to be 4 percent in October 2025, as the Internal Revenue Code mandates that interest rates be determined on a quarterly basis. For taxpayers other than corporations, both the overpayment and underpayment rates are set by adding 3 percentage points to the federal short-term rate.

For corporations, the general underpayment rate is also 7 percent (the FSTR plus 3 percentage points), and the general overpayment rate is 6 percent (the FSTR plus 2 percentage points). Special corporate rates were also detailed in the ruling: the rate for large corporate underpayments will be 9 percent (the FSTR plus 5 percentage points), and the rate applicable to the portion of a corporate overpayment exceeding $10,000 for a taxable period is 4.5 percent (the FSTR plus one-half (0.5) of a percentage point).

In addition to the interest rate determination, the Internal Revenue Bulletin 2025-48 included new guidance addressing compliance and emerging tax issues. Notice 2025-62 provides penalty relief for the 2025 tax year concerning the implementation of new information reporting requirements.

This relief is related to deductions for qualified tips and qualified overtime compensation that were added to the tax code by Public Law 119-21 (the One, Big, Beautiful Bill Act, or OBBBA) on July 4, 2025.

The notice specifically grants relief from penalties for failure to file correct information returns and failure to furnish correct payee statements. Furthermore, 2025 is designated as a transition period for enforcement because Forms W-2 and 1099 will not be updated to reflect the OBBBA-related changes for that year.

The IRS issued Revenue Procedure 2025-31 to establish a new safe harbor for investment vehicles dealing with digital assets. This safe harbor permits trusts that qualify as investment trusts and grantor trusts to stake their digital assets without jeopardizing their current tax status for Federal income tax purposes.

The revenue procedure also specifies a limited time period during which existing trusts may amend their governing instruments to comply with the requirements of the new safe harbor.