Interest rates

[lynnlee722]

I understand that payment plans have compounding interest rates based on the quarterly rates plus a certain amount, but I'm trying to determine how this is impacted by monthly payments? Is each month charged according to the balance at the end of the month or is there some way it is averaged?

[Critter]

How interest is calculated
Out of the two charges you can face, the interest is the more straightforward to calculate. The IRS interest rate is determined by the Federal short-term rate plus 3%. Since the Federal short-term interest rate has been close to 0% for some time now, the interest rate charged on late tax payments is 3% as of this writing (October 2015).

Keep in mind that interest rates are widely predicted to start increasing in the not-too-distant future, so this can (and likely will) change over time.

Interest is computed on a daily basis, so each day you are late paying your taxes, you'll owe 0.0082% of the balance.

So, if you owe the IRS $1,000 and you're 90 days late, first calculate your daily interest charge, which would be about $0.082. Then, multiply it by 90 days to arrive at the total interest charge of $7.40.