If a taxpayer files a return late, how is the interest on the unpaid tax calculated?

When a taxpayer files a return late and owes taxes, the interest on the unpaid tax is calculated using the statutory interest rate. The IRS sets this rate, which is based on the federal short-term rate plus a specific percentage, and it applies uniformly to all taxpayers. Statutory interest is assessed until the tax is paid in full, ensuring that the amount due reflects any time value of money considerations while remaining consistent and predictable.

This method of interest calculation serves to incentivize timely tax payments and provide a clear understanding of the financial implications of late filing. In contrast, other forms of interest like simple interest or compound interest are not utilized in this context; the IRS strictly adheres to the statutory rate to simplify the calculation for both the taxpayer and the administration.