IRS Underpayment Interest Rate 2026 by Quarter: 7% for Q4
July 2026 · Updated October 12, 2026
Key Takeaways
- The IRS underpayment interest rate for individuals is 7% for Q4 2026 (October 1 – December 31). 2026 by quarter: 7%, 6%, 7%, 7%.
- The same rate drives two charges: the estimated tax penalty on a short quarterly payment (simple, figured day by day) and interest on a balance still owed after the filing deadline (compounded daily).
- The rate is set every quarter (the federal short-term rate plus 3 percentage points for individuals), so the next possible change is January 1, 2027.
- The fix is simple: check whether you already clear the safe harbor threshold, then size your January 15, 2027 payment to close any gap before the balance grows.
The IRS underpayment interest rate for individuals is 7% for the fourth quarter of 2026 (October 1 through December 31), the same as the third quarter. It went up from 6% to 7% on July 1, 2026. If you underpaid taxes at any point this year, that rate is running in the background on every unpaid dollar, starting the day the payment was originally due, not the day you happen to notice.
This isn't a flat fee. It's charged by the day, so the longer a shortfall goes uncorrected, the more it costs. The rate is used in two different ways, though: the estimated tax penalty on a short quarterly payment is simple interest (shortfall × rate × days, with no compounding), while interest on a balance due after the filing deadline compounds daily, so it ends up slightly above 7% over a full year.
IRS underpayment interest rate
Q4 2026 (October 1 – December 31). Compounds daily. Next reset: January 1, 2027.
How the IRS Sets This Rate
The IRS underpayment rate for individuals is the federal short-term rate plus 3 percentage points, recalculated and announced every quarter, on January 1, April 1, July 1, and October 1. It can rise, fall, or hold steady each quarter depending on where short-term interest rates are heading. The current and historical figures are published on the IRS's Quarterly Interest Rates page, worth bookmarking directly rather than relying on a screenshot from a few months back.
The rate applies in two separate situations:
- Underpaid quarterly estimated tax. If a quarterly payment fell short of the estimated tax amount due, interest accrues on the shortfall starting from that quarter's due date, not from when the return is eventually filed.
- A balance still owed after filing. If your return shows tax due, interest accrues on that balance from the original filing deadline until it's paid in full, whether or not you filed for a filing extension. A filing extension only moves the paperwork deadline, not the payment deadline.
2026 IRS Underpayment Interest Rates by Quarter
These are the rates the IRS charges individuals on unpaid tax and on underpaid estimated tax in each quarter of 2026. Interest on a shortfall that spans several quarters is charged at each quarter's rate in turn.
| Quarter | Dates | Individual Underpayment Rate |
|---|---|---|
| Q1 2026 | January 1 – March 31 | 7% |
| Q2 2026 | April 1 – June 30 | 6% |
| Q3 2026 | July 1 – September 30 | 7% |
| Q4 2026 | October 1 – December 31 | 7% |
IRS Underpayment Interest Rate History, 2019–2026
The individual rate has ranged from 3% to 8% since 2019. It bottomed out at 3% from mid-2020 through early 2022, climbed with short-term interest rates to 8% from late 2023 through 2024, and has sat at 6% to 7% since 2025.
| Year | Q1 (Jan–Mar) | Q2 (Apr–Jun) | Q3 (Jul–Sep) | Q4 (Oct–Dec) |
|---|---|---|---|---|
| 2019 | 6% | 6% | 5% | 5% |
| 2020 | 5% | 5% | 3% | 3% |
| 2021 | 3% | 3% | 3% | 3% |
| 2022 | 3% | 4% | 5% | 6% |
| 2023 | 7% | 7% | 7% | 8% |
| 2024 | 8% | 8% | 8% | 8% |
| 2025 | 7% | 7% | 7% | 7% |
| 2026 | 7% | 6% | 7% | 7% |
Rates are for individuals (non-corporate taxpayers). Large corporate underpayments are charged 2 percentage points more. Source: IRS Quarterly Interest Rates and the quarterly IRS interest rate announcements.
What Rate Applies to a 2025 Balance Paid in 2026?
A balance due on a 2025 return starts accruing interest on April 15, 2026, even if you filed an extension. The IRS then charges each quarter's rate for the days the balance stays unpaid in that quarter: 6% from April 15 through June 30, 2026, and 7% from July 1 onward. A 2025 balance still unpaid today is accruing at 7%. The failure-to-pay penalty is charged separately, on top of the interest.
What a Shortfall Actually Costs
The estimated tax penalty (Form 2210) is figured separately for each quarter: the shortfall times the annual rate times the number of days it stayed unpaid, divided by 365. It doesn't compound, and it stops on the date you pay or on the April filing deadline, whichever comes first. Interest on a balance due after the filing deadline compounds daily: each day's interest is added to the balance, so at 7% the effective annual cost is about 7.25%. Here's what each looks like at 7%:
| Amount Unpaid | Estimated Tax Penalty, 90 Days | Balance-Due Interest, 90 Days | Balance-Due Interest, 1 Year |
|---|---|---|---|
| $1,000 | ≈ $17 | ≈ $17 | ≈ $73 |
| $5,000 | ≈ $86 | ≈ $87 | ≈ $363 |
| $10,000 | ≈ $173 | ≈ $174 | ≈ $725 |
Over a single quarter the two are almost identical; compounding only becomes visible over longer periods. The estimated tax penalty can't run a full year on one installment, because it stops at the April filing deadline, after which any unpaid tax accrues compounding interest instead. These figures assume the 7% rate holds for the full period at issue. The IRS resets the rate quarterly, so a longer-running shortfall could see the rate move up or down along the way. Treat these as directional estimates, not exact figures for your situation.
Where This Shows Up Next: Q4 Estimated Taxes
The next deadline this affects is the Q4 estimated tax payment, due January 15, 2027, which covers income earned September 1 through December 31, 2026. Any shortfall from Q1, Q2 or Q3 is already accruing interest at the rate in effect for each quarter, and any new Q4 shortfall starts accruing the moment January 15 passes. Our Q4 2026 quarterly tax guide covers how to calculate the right payment, and our guide to which months each estimated payment covers explains why the quarters are uneven.
The Fix: Check Safe Harbor, Then Close the Gap
You don't need to calculate your exact 2026 tax liability to stop this interest from accruing further. You only need to land inside one of the IRS's safe harbor thresholds: pay at least 90% of this year's tax, or 100% of last year's tax (110% if last year's adjusted gross income was over $150,000). Hitting either number on time through withholding plus estimated payments avoids the estimated tax penalty, even if a balance remains at filing. Any balance you still owe after April 15 accrues ordinary interest at the published rate until it's paid.
Two moves are worth making before January 15, 2027:
- Check whether your withholding and payments so far already clear the prior-year safe harbor, usually the easiest target to hit. See our full safe harbor rule explainer for the exact math.
- If you're short, pay the gap as soon as you can rather than waiting for January 15. The penalty keeps growing each day on the difference at each quarter's rate: 7% through December 31, then the Q1 2027 rate, which is set separately. If you or a spouse have any W-2 income, there's also a lesser-known lever worth knowing about: withholding can sometimes fix an earlier shortfall without writing an estimated check at all.
Stop guessing what you owe.
Numeris Ledger tracks your income and expenses in real time and calculates your estimated federal, state, and self-employment tax as the year unfolds, so you know your safe harbor number before interest has a chance to build.
Start your free 7-day trialFrequently Asked Questions
What is the IRS underpayment interest rate right now?
The IRS underpayment interest rate for individuals is 7% for the fourth quarter of 2026 (October 1 through December 31), unchanged from the third quarter. Interest on unpaid tax compounds daily at that rate, while the estimated tax penalty uses it without compounding. The rate resets every quarter, so check the IRS Quarterly Interest Rates page for the current figure if you're reading this after January 1, 2027.
How is the IRS underpayment rate calculated?
For individuals, the rate equals the federal short-term rate plus 3 percentage points. The IRS recalculates and publishes it four times a year, effective January 1, April 1, July 1, and October 1.
Does the interest compound daily or monthly?
Interest on unpaid tax compounds daily: each day's interest is added to the balance, so at a 7% rate the effective yearly cost is about 7.25%. The estimated tax penalty for a short quarterly payment doesn't compound. It's the shortfall times the rate times the days unpaid, and it stops at the April filing deadline if not paid sooner.
How do I stop the interest from accruing?
Pay the outstanding balance. Interest stops accruing on any amount the day it's paid. If you can't pay the full amount at once, paying as much as possible reduces the balance the interest is calculated on going forward.
Is the underpayment interest the same as the estimated tax penalty?
They're closely related but not identical. The underpayment penalty for estimated taxes is itself computed using this same interest rate, applied to each quarter's shortfall for the number of days it went unpaid, without compounding. Any balance still unpaid after the April filing deadline accrues interest at the same published rate, compounded daily, until it's paid off, whenever you file.
What were the IRS underpayment interest rates for each quarter of 2026?
For individuals, the 2026 underpayment rates were 7% for Q1 (January 1 to March 31), 6% for Q2 (April 1 to June 30), 7% for Q3 (July 1 to September 30) and 7% for Q4 (October 1 to December 31). Each quarter's rate applies only to the days a balance is unpaid during that quarter.
What interest rate applies to a 2025 tax balance paid in 2026?
Interest on a 2025 balance starts on April 15, 2026, even with an extension. It is charged at 6% from April 15 through June 30, 2026, and at 7% from July 1, 2026 onward, compounding daily, until the balance is paid. The failure-to-pay penalty is charged separately on top of that interest.
What was the IRS underpayment rate from 2019 to 2025?
For individuals: 6% to 5% in 2019, 5% to 3% in 2020, 3% throughout 2021, 3% rising to 6% during 2022, 7% to 8% in 2023, 8% throughout 2024 and 7% throughout 2025. The full quarter-by-quarter table is in this post, and the IRS publishes each quarter's rate on its Quarterly Interest Rates page.
Does meeting the safe harbor rule stop the interest too?
It stops the estimated tax penalty, which is the interest-like charge on quarterly shortfalls. It does not stop interest on a balance you still owe after the April 15 filing deadline. If you met safe harbor but owe at filing, pay by April 15 to avoid that interest entirely. Numeris Ledger shows your safe harbor target as the year goes so you can plan for both.
Tax information in this post is for general educational purposes only and does not constitute tax or legal advice. Rates and thresholds are current as of publication and can change; consult our CPA, or the IRS directly, for guidance specific to your situation.