Publication 75, Interest, Penalties, and Collection Cost Recovery Fee
How Do Interest, Penalty, and the Collection Cost Recovery Fee Charges Apply?

Interest

The rate of interest applied to underpayments of taxes differs from the rate of interest paid on overpayments of taxes. In general, the interest rate is based on the rate charged by the Internal Revenue Service plus three percent, and applies to unpaid or underpaid taxes. We evaluate the rates every January and July. If a rate change is required, the rate change takes effect six months later and remains in effect for at least six months after the date the rate is changed.

Please note: Interest rates applicable to the International Fuel Tax Agreement (IFTA) accounts are set at an annual rate of two percentage points above the underpayment rate established under section 6621 (a)(2) of the Internal Revenue Code and are adjusted on an annual basis on January 1 of each year. The interest rate applicable to surplus line brokers are set to one percent per month per the Insurance Code section 1775.5(c)(2).

Current interest rates can be found on our Interest Rates webpage. You may also call our Customer Service Center at 1-800-400-7115 (TTY:711). We may waive interest under limited circumstances as explained under Relief from Interest, Penalties, and the Collection Cost Recovery Fee (CRF).

The annual interest rate for underpayments and overpayments of taxes is established using the specific guidelines found in Revenue and Taxation Code section 6591.5. The monthly interest rate is calculated by dividing the annual rate by 12 months. For example, if the annual interest rate is nine percent, the monthly interest rate is 0.75 percent (9 percent divided by 12).

Interest is calculated on a per-month basis. In other words, one month’s interest applies for each month or fraction of a month that a payment is late. For example, if a payment is three days late, a full month’s interest is due. Or, if a payment is one month and three days late, two months’ interest is due.

Interest on unpaid or underpaid taxes starts from the day after the tax is due. Interest on refunds and credits for tax overpayments start the day after the return or tax was due.

Penalties

As explained on the previous pages, the penalty depends on the type of program, penalty percentage, and whether more than one penalty applies.

Collection Cost Recovery Fee (CRF)

The CRF applies to each final bill on liabilities greater than $250 that remain unpaid for more than 90 days following the issuance of a demand notice. The unpaid liability does not need to include tax for us to impose the CRF. The CRF applies even if only interest or penalty remains on an unpaid liability. If multiple bills exist for a specific reporting period, we will impose a separate CRF for each bill’s liability amount due. However, one CRF applies to a bill that may cover multiple reporting periods, such as a bill resulting from an audit. Interest, penalty, and additional CRF do not apply to a CRF.

We recalculate and adjust CRFs periodically to ensure the total CRFs assessed are equal to the collection costs we incur. Revised CRF rates will become effective on January 1 and will apply only to bill periods for which a CRF was not previously assessed. For current CRF amounts, see our Collection Cost Recovery Fee webpage.

The CRF will not apply if you either pay your liability in full on time or if you are not able to pay in full, enter into a payment plan within 90 days of the bill date for each liability, and fulfill all the terms of the agreement. You must successfully complete the terms of the Installment Payment Agreement (IPA) to avoid the CRF. If the IPA is terminated or cancelled, a CRF will be assessed based on the remaining balance of each period, with an amount that is due for more than 90 days and with a balance greater than $250.