IRS Holds Interest Rates Steady for Q3 2025: What Tax Professionals Should Know

The IRS has announced that federal interest rates will remain unchanged for the third quarter of 2025. These rates apply to tax overpayments, underpayments, and penalties — and they play a critical role in tax planning, cash flow forecasting, and dispute resolution for both individuals and businesses.

This decision, which holds the current rate levels through July 1 to September 30, 2025, reflects the IRS’s response to stable economic indicators and inflation trends.

What Are the Current IRS Interest Rates?

For Q3 2025, the rates are:

• 7% for overpayments (payments made in excess of tax owed)

• 6% for corporate overpayments (amounts over $10,000 subject to a lower rate)

• 7% for underpayments (late or insufficient payments of tax)

• 9% for large corporate underpayments

  
  

These rates are determined quarterly under Section 6621 of the Internal Revenue Code and are tied to the federal short-term rate plus a fixed spread.

Why This Matters

IRS interest rates affect a wide range of tax issues, including:

1. Estimated Tax Planning

Taxpayers — especially those with variable income (e.g., business owners or investors) — must pay quarterly estimates to avoid underpayment penalties. An unchanged interest rate means no additional cost pressure, but it also keeps the penalty rate steady for those who underpay.

2. Refund Expectations

For overpaid taxes or amended returns, the IRS uses these rates to calculate interest on refunds. Knowing the 7% rate allows firms to more accurately forecast refund interest for clients.

3. Audit Settlements and Payment Plans

In cases where taxpayers are settling underpaid taxes through installment agreements or audit resolutions, the 7% interest rate on underpayments can add up. It’s critical to factor this into negotiation strategy and payment timing.

IRS Rate Trends Since 2022

After several quarters of rising rates in response to inflation, this is now the third consecutive quarter the IRS has held rates steady. The move aligns with broader signals from the Federal Reserve, which is taking a wait-and-see approach before adjusting benchmark interest rates.

For now, the IRS is signaling that it sees no immediate need to adjust tax-related borrowing or repayment costs.

Key Takeaways for Tax Professionals

• Reconfirm estimated payment schedules for high-income or self-employed clients

• Recalculate interest on outstanding tax debts using the Q3 rates

• Factor in the interest rate when advising clients on whether to pay early, file amended returns, or enter installment agreements

  
  

Final Thought

IRS interest rates may seem like a technical detail, but they have real implications for tax liability, refund value, and compliance costs. With rates holding steady at relatively high levels, tax professionals should ensure clients understand how these numbers affect their broader financial picture.

At Bizora AI, we continue to track regulatory updates and help CPA firms translate them into smart, timely strategies.