How much interest does the IRS charge on unpaid taxes?

The IRS charges interest on unpaid taxes at the federal short-term rate plus 3%, compounded daily. As of 2024-2025, this rate has been 7-8% annually, though it adjusts quarterly. Interest accrues from the original due date of the return (usually April 15) until the date you pay in full. Unlike penalties, IRS interest cannot be abated except in very rare cases of IRS error causing a delay. On top of interest, you face two main penalties: the failure-to-file penalty (5% per month up to 25% of unpaid tax) and the failure-to-pay penalty (0.5% per month up to 25%). Combined, these can add 50%+ to your original balance within the first few years. For example, a $10,000 tax debt can grow to approximately $16,000-$18,000 within 3 years when you factor in both penalties and interest. The failure-to-pay penalty drops to 0.25% per month if you're in an approved installment agreement, which is one reason entering an agreement early is beneficial even if you can't pay in full.