IRS Releases Updated Discount Factors for the 2025 Accident Year

The IRS has issued Revenue Procedure 2026-13, which updates the discount factors insurance companies must use to calculate discounted unpaid losses under Internal Revenue Code § 846 and discounted estimated salvage recoverables under § 832. These factors apply to losses from the 2025 accident year and are relevant for tax returns for taxable years beginning in 2025.

These updates impact tax reporting, compliance, and planning for property and casualty insurers.

Key Updates in IRS Revenue Procedure 2026-13

Revenue Procedure 2026-13 outlines updated discount factors and computational conventions insurers must use for discounting unpaid losses and estimated salvage recoverables. Key highlights include:

New Discount Factors for the 2025 Accident Year
The IRS set new discount factors for the 2025 accident year using an interest rate of 3.57%, compounded semiannually. These factors determine the present value of unpaid losses and estimated salvage recoverables for tax purposes.

Prior Accident Year Factors Provided for Reference
The revenue procedure also provides discount factors for accident years before 2025. These factors remain applicable for calculating discounted reserves for earlier accident years in tax years beginning in 2025.

Composite Method Continues to Apply for Certain Long-Tail Lines
Discount factors for certain long-tail lines of business continue to be determined using the composite method described in Notice 88-100.

Mid-Year Payment Assumption Remains in Effect
All discount factors assume loss payments occur midway through the calendar year, ensuring consistency in present-value calculations across accident years and lines of business.

Why These Changes Matter for Insurance Companies

Insurance companies must use IRS-prescribed discount factors to determine deductible unpaid losses and estimated salvage recoverables for federal income tax purposes. Applying the correct factors ensures accurate reserve calculations, proper tax reporting, and compliance.

The updated interest rate and discount factors may affect the timing and amount of deductible losses, influencing taxable income and tax planning strategies.

Plan Ahead with the Right Guidance

Understanding and applying the guidelines in Revenue Procedure 2026-13 is essential for accurate tax reporting and compliance in tax years beginning in 2025. If you need clarification on how these updates may affect your organization, contact your CRI advisor. Our team can provide guidance and support to help ensure your company remains compliant and prepared.