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Federal Taxes

Tax Rates, Tables and Inflation Adjusted Figure

When discussing estate, compensation, and life insurance planning, there are three important interest rates to keep in mind: the applicable federal rates (AFRs), the blended annual rate, and the 7520 rate.

Applicable Federal Rates. Section 1274(d) of the Internal Revenue Code instructs the Secretary of the Treasury to determine the Federal short-term, mid-term and long-term rates. The short-term rates apply to loans with maturities of 3 years or less. The mid-term rates apply to loans with maturities of more than 3 years but not more than 9 years, and the long-term rates apply to loans with maturities of more than 9 years.

The rates, which are based on market yields from marketable obligations of the United States, change monthly and are published in a Revenue Ruling around the 20th of each month. These rates are used to impute interest for below market loans, as well as to provide a threshold for term loans intended to avoid below market treatment.

Blended Annual Rate. A demand loan, which is payable in full at any time on the lender's demand, must accrue interest at the blended annual rate to avoid below market treatment. The blended annual rate is equal to one half of the January semiannual short term AFR added to one half of the July semiannual short term AFR. The IRS calculates and publishes this rate in the Internal Revenue Bulletin each July.

7520 Rate. The present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest is calculated using the 7520 rate. For example, the value of the charity's remainder interest in a charitable remainder trust (CRT) and the amount of the grantor's taxable gift upon establishing a grantor retained annuity trust (GRAT) or qualified personal residence trust (QPRT) use the 7520 rate.

View the recent Applicable Federal Rates (Table I) or the 7520 Rates (Table V).


This publication is not intended as legal or tax advice. This information was compiled by The Northwestern Mutual Life Insurance Company. It is intended solely for the information and education and/or promotional purposes of Northwestern Mutual financial representatives and advisors with whom they work. It must not be used as a basis for legal or tax advice, and is not intended to be used and cannot be used to avoid any penalties that may be imposed on a taxpayer. Financial representatives do not give legal or tax advice. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor. Tax and other planning developments after the original date of publication may affect these discussions.

© 2016 The Northwestern Mutual Life Insurance Company, Milwaukee, WI