Per annum is Latin for by the year. A rate or an amount tagged per annum is stated on an annual basis, so a rate quoted per annum is the rate for a year and a salary quoted per annum is the figure for a year. The tag names the basis the figure is quoted on. It says nothing about how often anything is paid, and nothing about how long the arrangement runs.
What the Tag Fixes, and What It Leaves Open
Per annum fixes the period the figure is measured over, and stops there. A stated annual rate on a note that matures in six months still describes a year, so the interest that builds over those months is a fraction of the annual figure rather than the whole of it. Carving that annual figure down to a shorter period is proration, and the formula sits in prorated; the day-count conventions that decide how much has built up between payment dates sit in accrued interest; whether the payment itself falls at the front or the back of the period is a separate convention, set out in payable in arrears.
What the tag leaves open is whether the interest compounds, and that is the ambiguity that changes the money. Treasury’s own regulation says so directly. Because interest accruing after December 31, 1982, accrues at the prescribed rate per annum compounded daily, the effective annual percentage rate of interest will exceed the prescribed rate of interest (eCFR, section 301.6621-1(a)(3), Interest rate). Two notes can carry the same principal and the same per annum rate and still settle at different amounts.
Say a balance carries a stated annual rate and nothing else about the terms changes.
Principal 100,000
Stated rate, per annum 7%
Half a year, simple
100,000 x 7% x 0.5 3,500.00
A full year, simple
100,000 x 7% 7,000.00
A full year, compounded daily
Effective rate (1 + 7%/365)^365 - 1 7.2501%
100,000 x 7.2501% 7,250.10The stated rate never changes. What changes is the period on the first line, and the compounding instruction on the last.
Where a US Firm Meets the Tag
A stated rate on a note or a loan agreement is the everyday case. A fee escalation clause is the same tag on a percentage, raising the fee once for each year the clause runs rather than once per invoice, and a salary quoted per annum states the yearly figure and leaves the pay period to the employment agreement.
Federal tax interest is the case where the tag is set by statute. The underpayment rate is the federal short-term rate plus 3 percentage points, and the Secretary determines that short-term rate for the first month in each calendar quarter, to apply, in general, during the first calendar quarter beginning after that month (26 U.S.C. 6621(a)(2), 6621(b)(1) and 6621(b)(2)(A)).
For the third quarter of 2026 that puts the underpayment rate at 7%, on a federal short-term rate of 4% (IRS, Quarterly interest rates). The annual figure is only half the instruction, because interest required to be paid under the Internal Revenue Code by the Secretary or by the taxpayer shall be compounded daily (26 U.S.C. 6622(a)).
What Per Annum Is Not
An Effective Annual Rate
A rate quoted per annum is the stated basis, while an effective annual rate is what a year of that basis actually produces once compounding is applied, so the two differ on identical terms whenever interest compounds inside the year.
A Fiscal Year
Per annum is a basis a figure is quoted on, not a defined accounting period, and the period a taxpayer’s books are actually kept on is a fiscal year.
Common Questions
It means the figure is quoted for a year, so the measure is a year. It does not mean the arrangement lasts a year. A rate quoted per annum on a note that matures in ninety days is still an annual rate, and only the accrual period is short.
Accountably places trained offshore accountants and tax preparers inside US CPA and EA firms, and a firm can put a block of its own note schedules and interest computations through a trial task before anything client facing depends on it.
