Installment Agreement Interest Rate


    If you owe back taxes to the Internal Revenue Service (IRS), you may be able to set up an installment agreement to pay off your debt in monthly payments. However, it`s important to understand the interest rates associated with these agreements before signing up.

    The interest rate for an installment agreement is determined by the IRS and is updated quarterly. As of the third quarter of 2021, the interest rate for individual taxpayers is 3% per year, while the interest rate for corporations is 5%.

    It`s worth noting that the interest rate is compounded daily, which means that interest is calculated on the total amount of tax debt owed plus any accumulated interest. Therefore, the longer it takes to pay off your tax debt, the more interest will accrue.

    To minimize the amount of interest you owe, it`s important to make timely and consistent payments. In addition, consider paying more than the minimum required amount each month if possible. This will help you pay off your debt faster and reduce the overall amount of interest you owe.

    It`s also worth considering other payment options, such as an Offer in Compromise or filing for bankruptcy, if they are applicable to your situation. These options may allow you to settle your tax debt for less than the full amount owed and may also reduce or eliminate interest and penalties.

    Overall, an installment agreement can be a helpful option for taxpayers who are unable to pay their full tax debt immediately. However, it`s important to understand the associated interest rates and to make consistent payments to minimize the amount of interest accrued over time.