IRS interest rates climb back to 7% on July 1. Here's what S-Corp owners should do before then.

The IRS published Rev. Rul. 2026-10 in Internal Revenue Bulletin 2026-22 on May 26, with a corresponding Federal Register notice dated May 18. Effective July 1, 2026, quarterly interest rates for underpayments climb back up one point — fully reversing the small Q2 cut.

If you owe estimated tax, if you're carrying a CP14 balance, or if you've been thinking about a year-end W-2 catch-up to true up reasonable compensation — the cost of waiting just went up.

What changed

For the Q3 2026 calendar quarter (July 1 through September 30):

• Individual underpayments: 7% (was 6% in Q2)
• Individual overpayments / refunds: 7%
• Corporate underpayments: 7% (was 6%)
• Large corporate underpayments under §6621(c): 9% (was 8%)
• Corporate overpayments over $10,000: 4.5%
• §6603 cash deposits: 4%

All interest compounds daily under IRC §6622. The annual rate is just the headline; the actual cost is calculated and added every single day.

Why this matters for S-Corp owner-operators

Three places this lands hardest.

Q1 and Q2 estimated-tax shortfalls

Anyone who under-paid in April or hasn't yet sent the June 15 payment is accruing interest on the gap. From July 1 forward, that gap accrues at 7% instead of 6%. On a $10,000 underpayment carried for the back half of the year, the rate increase costs roughly $50 — small per case, but it stacks across the book.

Open balances from prior-year returns

If you got a CP14 (balance due) or a CP504 (final-notice-before-levy) on a return we prepared, the underpayment-interest meter accelerates on July 1. Settling before then locks in the lower Q2 rate; everything after compounds at the higher rate.

Year-end W-2 catch-ups for reasonable compensation

A common S-Corp strategy is to under-pay yourself on payroll through the year, then run a big December bonus to hit the reasonable-comp target. That works — but the deferred payroll-tax cost is, in effect, an interest-bearing position. With Q3 rates one point higher, that defer-and-true-up math is one point less profitable. Worth running the numbers if you've been pushing the catch-up later.

The next deadline

If you've been carrying a notional shortfall waiting to settle, June 15 is the last full payment that lands inside the lower Q2 rate window. Everything you delay past July 1 starts compounding at the new 7%.

Three concrete moves before July 1

1. Make the June 15 payment on time, in full

If you've been short on Q1, this is the catch-up moment. EFTPS, IRS Direct Pay, or your tax software's estimated-payment workflow all work; the IRS doesn't reward you for paying early but it absolutely penalizes you for being late.

2. If you owe from 2025, settle before July 1

This applies to balances from a return that's already been filed, including amounts on CP14/CP504 notices. The full balance accrues at the lower Q2 rate until June 30, then jumps. Paying down even a partial balance before then saves real interest dollars.

3. If you under-paid reasonable comp through Q1–Q2 planning to catch up at year-end, run the numbers now

The deferred-payroll position is one point more expensive starting July 1. The right move depends on cash flow, your reasonable-comp memo, and your basis position — but knowing the cost of waiting is the first step. If we prepare your 1120-S, this is the conversation we'd have on a planning call.

What we do — and what we don't

We prepare 1120-S returns, K-1s, reasonable-compensation memos, basis schedules, and Form 1040s for S-Corp shareholders. We respond to routine IRS notices (CP2000, CP14, CP504, math-error letters) on returns we prepared. If you're carrying a balance and want to plan the payment strategy alongside the books, that's exactly the work we do.

We do not negotiate Offers in Compromise, file installment-agreement requests, defend audits, or handle collections work. If you're facing any of those, we refer you to a licensed Enrolled Agent or tax attorney and supply them the underlying return work.

Sources

• IRS, Quarterly Interest Rates (official table): irs.gov/payments/quarterly-interest-rates
• IRS, Internal Revenue Bulletin 2026-22 (May 26, 2026), containing Rev. Rul. 2026-10: irs.gov/irb/2026-22_IRB
• Federal Register notice, published May 18, 2026: federalregister.gov
• Statutory authority: IRC §6621 (rate determination) and IRC §6622 (daily compounding)