The Internal Revenue Service (IRS) and Kentucky Department of Revenue have recently increased the interest rates on underpayments of income tax, including estimated tax penalties. These rates have risen sharply over the past year and are expected to remain high in 2023. Taxpayers who delay making payments may face significant costs due to these increased interest rates.
The current federal interest rate on past due income tax is 7%, while the Kentucky interest rate is 8%. These rates are used to calculate estimated tax penalties, which are imposed on taxpayers who underpay their taxes throughout the year. In addition, any balances due on income tax not paid by the original due dates are also subject to interest.
The IRS updates its interest rates quarterly, and the rates have increased from 3% in the first quarter of 2022 to 7% in the first quarter of 2023. The Kentucky interest rate on tax underpayments was 5% in 2022 but has now increased to 8% for 2023.
These increased interest rates can be a significant cost to taxpayers who have historically delayed making payments throughout the year. Taxpayers who owe taxes should consider making payments as soon as possible to avoid additional interest charges.
To determine the best payment plan or strategy to minimize your tax liability and avoid penalties, contact our team at Baldwin CPAs today.
Read more about interest rates on underpayments from the IRS and KY Department of Revenue.