The IRS Will Keep Charging 7% on What You Owe — and It Compounds Daily

In IR-2026-98, issued August 21, 2026, the IRS said interest rates will remain unchanged for the calendar quarter beginning October 1, 2026. For individuals, the rate on both overpayments and underpayments stays at 7% per year, compounded daily.

The rate is not discretionary. Under the Internal Revenue Code it is reset quarterly at the federal short-term rate plus three percentage points for taxpayers other than corporations. The rates announced in August were computed from the federal short-term rate determined during July 2026, and the detail is in Revenue Ruling 2026-15.

Compounded daily is not a rounding detail. Carried for a full year:

• $5,000 owed → about $363 in interest
• $10,000 owed → about $725
• $25,000 owed → about $1,813
• $50,000 owed → about $3,625

And interest is only half of it. The failure-to-pay penalty runs separately at 0.5% of the unpaid tax for each month or part of a month it stays unpaid — a further $600 a year on a $10,000 balance. Together that is roughly $1,325 a year on $10,000, or a little over 13%.

The penalty is capped at 25% of the unpaid tax, which is reached after 50 months. The interest is not capped and does not stop.

Here is the part worth knowing before the next notice arrives. The IRS states it plainly: if you filed your return on time and have an approved payment plan, the failure-to-pay penalty is reduced to 0.25% per month for the duration of the plan.

On a $10,000 balance that is the difference between $600 and $300 of penalty over a year — for a step that does not require paying anything more today. The interest keeps running at 7% either way.

The rate moves the other way too. If you receive a notice of intent to levy and do not pay within 10 days, the failure-to-pay penalty rises to 1% per month. And the agency applies full monthly charges even if you pay in full before the month ends, so settling on the 2nd of a month costs the same as settling on the 30th.

The rate is redetermined every quarter, so the 7% figure is accurate for the quarter beginning October 1, 2026 and no further. It has been in this range for some time, but the announcement for the first quarter of 2027 is a separate event and can differ.

The rule of thumb that follows from the numbers above: tax debt at 7% compounded daily plus 6% a year in penalties is more expensive than most credit cards charge at their headline rate, and unlike a card it grows on a balance that the government can collect against by levy. It is rarely the debt to leave until last.