What is the annual interest rate charged for unpaid income taxes?

• A. 10%
• B. 20%
• C. 5%
• D. 15%

Answer: (B)

Unpaid income taxes accrue interest on the outstanding balance from the due date until payment, and that interest is shown as an annual rate. In this question the annual rate used to illustrate the cost of delaying payment is 20%, which communicates how quickly the amount owed can grow if taxes remain unpaid. The higher rate serves to emphasize the consequence of not settling on time and aligns with the problem’s simplifying assumption that reflects the time value of money and administrative risk. The other lower percentages would understate the cost of not paying promptly in this context, which is why 20% is the best choice for this item. In real-world practice, the exact rate can vary with the federal short-term rate plus a margin, but the core idea is that interest compounds on unpaid taxes from the due date onward.