Bulletin Number
VTB 86-16
Tax Type
General Provisions
Description
Interest Rates; First Quarter 1987
Topic
Basis of Tax
Date Issued
12-24-1986
The Tax Reform Act of 1986 amended § 6621 of the Internal Revenue Code which sets out new policies relating to: (1) interest rates on overpayment and underpayment of taxes, and (2) the frequency of changes in interest rates. These federal policies are effective for all interest accruing after December 31, 1986 and will have application to Virginia taxes pursuant to Virginia Code § 58.1-15.
Overpayment and Underpayment Rates
Different interest rates will apply to overpayment and underpayment of tax. The interest rate for overpayments will be the short-term federal rate established under I.R.C. § 1274(d), rounded to the nearest whole percent, plus 2 percentage points. The interest rate for underpayments will be the same short-term federal rate, plus 3 percentage points. Effective January 1, 1987 the interest rate applicable to State tax overpayments will be 8% and the interest rate applicable to State tax underpayments will be 9%.
Frequency of Changes in Rates
Interest rates will be subject to change every quarter rather than semiannually. The rates established for the first month of a calendar quarter will become effective for the following calendar quarter. For example, the rates that are established for January will be effective for the following April through June.
Rate for Addition to Tax for Underpayment of Estimated Tax
For the purpose of computing the addition to tax for failure to pay the Virginia individual estimated income tax for calendar year taxpayers, the 9% underpayment rate set through the first quarter will apply through the due date of the Virginia individual income tax return, May 1, 1987. For corporation taxes, the 9% underpayment rate in the third month following the taxable year shall also apply during the first 15 days of the fourth month following such taxable year.
Local Tax
The interest rate as set out in Va. Code 58.1-3916 for the underpayment of local taxes shall be 9%.
Questions about these changes may be directed to the Taxpayer Assistance Section, Office Services Division, Virginia Department of Taxation, at P.O. Box 6-L, Richmond, Virginia 23282, or (804) 257-8031 (Individual) or 257-8036 (Corporation).
Tax Bulletins