Internal Revenue Bulletin 2026-8

IRS Lowers Interest Rates for Second Quarter of 2026

The Internal Revenue Service (IRS) has announced a decrease in the interest rates applicable to both overpayments and underpayments of tax for the calendar quarter beginning April 1, 2026, as detailed in Revenue Ruling 2026-5. The baseline rate, which is determined under Section 6621, which establishes the interest rates on overpayments and underpayments of tax, is now set at 6%, a decrease from the 7% rate that was in effect during the first quarter of 2026 per Rev. Rul. 2025-22. This adjustment reflects a decrease in the federal short-term rate, as defined in Section 6621(b)(3), which for January 2026, was determined to be 3%. The specific interest rates for the second quarter of 2026 are as follows: 6% for non-corporate overpayments and underpayments, 5% for corporate overpayments, 8% for large corporate underpayments, and 3.5% for the portion of corporate overpayments exceeding $10,000. This adjustment represents a loosening of rates compared to the 7% rate in Q1 2026.

Impact on Estimated Taxes and Penalties

The 6% rate established under Section 6621, which governs the determination of interest rates on tax overpayments and underpayments, also directly affects additions to tax for underpayment of estimated taxes. Specifically, Section 6654 addresses the failure by individuals to pay estimated income tax, while Section 6655 concerns the failure by corporations to pay estimated tax. As stipulated in Sections 6654(a)(1) and 6655(a)(1), the underpayment rate defined in Section 6621 applies when calculating the penalty for failing to pay estimated tax. Therefore, the newly established 6% rate is applicable to estimated tax underpayments for the second calendar quarter beginning April 1, 2026.

For individual taxpayers, Section 6621(b)(2)(B) incorporates a 'lookback' rule. This rule stipulates that in determining the addition to tax under Section 6654, the federal short-term rate applicable during the third month following the taxable year also applies during the first 15 days of the fourth month following the taxable year. Consequently, practitioners should note that the 7% rate from Revenue Ruling 2025-22, which covered the first quarter of 2026, remains relevant for the initial part of April 2026 in estimated tax calculations for individuals.

In addition, Section 6603 allows taxpayers to make deposits to suspend the accrual of interest on potential underpayments. Pursuant to Section 6603(d)(4), the rate of interest paid on these deposits will be 3% for the second calendar quarter of 2026.

Finally, for precise calculations involving daily compounding of interest, practitioners should refer to Revenue Procedure 95-17. This revenue procedure provides tables for daily compounding interest factors. Specifically, Tables 12, 15, 17, and 21 contain factors for annual interest rates of 3.5 percent, 5 percent, 6 percent, and 8 percent, respectively.