The interest rate charged by the Iowa Department of Revenue is following the national trends and dropping. The Department of Revenue reviews the interest rate it charges for overdue income, sales and withholding taxes each year and sets a new rate every October based on formula that uses the average prime rate charged by banks on short-term business loans.
Department spokesman Bob Rogers says the rate is dropping from 8% down to 5% — the lowest it has been in some time. He says he has a spreadsheet going back to 1989, and it’s the lowest the rate has been since then. Rogers says the change will make a difference for people who don’t make timely payments.
Rogers says state law requires the department to adjust its interest rate base on what’s happening with the federal rate. He says it’s based on the prime rate, which mirrors the federal funds rate. The change also means the state will pay lower interest for refunds it does not get out on time. The new rate begins January first.