Practice and Procedure: State Second Quarter Interest Rates on Underpayments and Overpayments Largely Unchanged


States that determine the interest rate charged on underpayments and paid on overpayments on a quarterly basis have announced second quarter interest rates. They are unchanged from first quarter rates, with the exception of Alaska.

Most states that determine the interest rates quarterly do so based on the federal rates, which are governed by I.R.C. § 6621. The federal underpayment rate for the second quarter of 2017, unchanged from the first quarter, is 4 percent generally, and 6 percent for large corporate underpayments. The federal overpayment rate for the second quarter, also unchanged from the first quarter, is 4 percent generally, but 3 percent for corporations and 1.5 percent for corporate overpayments exceeding $10,000.

Both federal underpayment and overpayment rates are generally equal to the federal short-term rate plus 3 percent. Per I.R.C. § 1274(d), the federal short-term rate is based on the average market yield on outstanding marketable obligations of the United States that have no more than three years to maturity.

Alaska, whose second quarter underpayment and overpayment rates increased by a quarter of a percent over the first quarter, determines its rates based on the federal discount rate. As such, the rate is directly impacted by Federal Reserve decisions to increase or decrease rates. The Fed increased the federal discount rate at its March 15 meeting.

The second quarter rates are as follows, for states that determine their interest rates on a quarterly basis:

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Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should states determine interest rates for underpayments and overpayments quarterly, annually or at some other interval?

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