Starting January 1, 2025, the Commonwealth of Kentucky has announced important changes to the interest rates charged on unpaid taxes and overpayments. These adjustments, made by Commissioner of the Department of Revenue, Thomas B. Miller, will impact how taxes accrue interest and how taxpayers are reimbursed for overpaid amounts.
Key Changes to Interest Rates
1. Lower Interest on Unpaid Taxes: The interest rate charged on unpaid taxes will decrease to 8% for 2025. This is a significant reduction from the 10% rate that applied in 2024. The new rate means that taxpayers who miss the statutory deadline for paying their taxes will face a lower financial burden in terms of interest.
2. Interest on Overpayments: If taxpayers overpay their taxes, they will now receive a 6% interest rate on the excess amounts. This rate applies to any overpayment refunds, ensuring that taxpayers who have paid more than required are compensated at a reasonable rate.
Why the Change Matters
These adjustments reflect a balance between ensuring timely payment of taxes and providing fair treatment to those who overpay. By lowering the interest rate on unpaid taxes, the Commonwealth seeks to reduce the burden on taxpayers. On the other hand, offering a 6% interest rate on overpayments helps incentivize individuals to file their taxes accurately while encouraging timely payments.
What This Means for Taxpayers
For taxpayers who owe money: If you miss your tax deadline, you’ll now face a lower interest charge, which may ease the financial strain. However, timely payments are still encouraged to avoid interest altogether.
For taxpayers expecting a refund: If you have overpaid your taxes, the 6% interest rate ensures you’ll receive a fair return on your overpayment.
Understanding the Legal Context
This change is based on the Kentucky Revised Statutes (KRS) 131.183, which requires the Department of Revenue to adjust interest rates on a yearly basis. The law mandates the Commissioner to review and set the interest rate annually, ensuring it aligns with the state’s fiscal policies.
The reduction in the interest rate for unpaid taxes and the establishment of a more favorable rate for overpayments is a positive change for taxpayers in Kentucky. With the new rates, individuals can expect fairer treatment and reduced financial stress regarding their tax obligations. It’s always a good idea to keep up to date with these adjustments to avoid surprises and ensure you’re making the most of your tax payments and refunds.
You also might want to know that Kentucky House Approves Slashing Individual Income Taxes Ahead of 2026
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