1. What is Federal Tax Interest?

Federal tax interest is the interest charged by the IRS on unpaid tax balances. It's calculated using the federal short-term rate plus 3 percentage points, compounded daily.

2. How Does the Calculator Work?

The calculator uses the IRS formula:

Where:

• \( Balance \) — The unpaid tax amount (USD)
• \( Short\ Term\ Rate \) — The current federal short-term rate (%)
• \( Days \) — Number of days the balance remains unpaid

Explanation: The IRS charges interest on unpaid taxes at the federal short-term rate plus 3 percentage points, calculated daily.

3. Importance of Tax Interest Calculation

Details: Accurate interest calculation helps taxpayers understand their total liability, plan for payments, and avoid additional penalties for underpayment.

4. Using the Calculator

Tips: Enter the unpaid balance in USD, the current federal short-term rate as a percentage, and the number of days the amount has been unpaid. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How often does the federal short-term rate change?
A: The IRS adjusts the federal short-term rate quarterly, typically in January, April, July, and October.

Q2: Is tax interest compounded daily?
A: Yes, IRS interest is compounded daily, which means interest is calculated each day on the principal plus any accrued interest.

Q3: Are there penalties in addition to interest?
A: Yes, the IRS may also charge failure-to-pay penalties which are separate from interest charges.

Q4: Can interest be waived?
A: In limited circumstances, the IRS may waive interest if the delay was due to reasonable cause and not willful neglect.

Q5: Where can I find the current federal short-term rate?
A: The current rates are published quarterly on the IRS website and in various IRS notices.