IRS Sets Q4 2026 Interest Rates and Launches Automatic Penalty Relief

The Internal Revenue Service announced that interest rates for tax underpayments and overpayments for the fourth quarter of 2026 will remain at 7 percent for individual taxpayers starting October 1. For corporations, the underpayment rate is 7 percent, though large underpayments will incur a 9 percent charge. Corporate overpayments are set at 6 percent, with a reduced rate of 4.5 percent for amounts exceeding $10,000. These figures are based on the July federal short-term rate of 4 percent.

Alongside the rate announcement, the agency introduced the Automatic Exemption from Penalty (AEP) process. This system automatically grants relief from common penalties, including failure to file or pay on time, for taxpayers who have maintained a clean filing and payment record for the previous three years or 12 consecutive quarters.

The AEP replaces the First Time Abate system, which previously required taxpayers to manually request relief. Taxpayers who do not qualify for the automatic exemption may still apply for relief by demonstrating reasonable cause.