Prejudgment interest in federal court is generally available, but whether you get it, at what rate, and from what date all turn on a single threshold question: is the underlying claim based on federal law or state law? Federal-question cases follow federal common law or a specific federal statute. State-law claims heard on diversity jurisdiction follow the interest rules of the governing state. That split can change both the rate and whether interest is available at all.
Federal Question Cases: The Default Rule
When a case arises under a federal statute or the U.S. Constitution, prejudgment interest is governed by federal law. Some statutes explicitly authorize or mandate it. When the statute is silent, federal courts treat prejudgment interest as presumptively available under federal common law and award it at the court’s discretion.
The Supreme Court’s decision in City of Milwaukee v. Cement Division, National Gypsum Co. sets the tone: prejudgment interest should ordinarily be awarded unless exceptional circumstances make it inequitable. A good-faith dispute over liability, standing alone, does not justify withholding it. A plaintiff who proves damages was out that money for years, and compensation isn’t complete without accounting for the delay.
Courts weighing a discretionary award look at a handful of practical factors. The most important is whether the damages were reasonably calculable when the claim arose. Liquidated amounts, like a fixed sum owed under a contract, almost always earn interest. Unliquidated damages, such as lost profits requiring estimation, face more scrutiny, though courts still award interest on them regularly. A court may reduce or deny interest if the plaintiff caused unreasonable litigation delays, sat on the claim before filing, or otherwise dragged the case out.
Statutes That Set Their Own Rules
Several federal statutes address prejudgment interest directly, taking some or all of the discretion out of the court’s hands.
Patent Infringement
The Patent Act directs courts to award damages “together with interest and costs as fixed by the court.” Courts routinely award prejudgment interest in patent cases to keep infringers from treating unlicensed use as an interest-free loan. The rate is typically the prime rate or the Treasury bill rate, chosen to approximate what the patent holder lost by not having the money sooner.
Federal Antitrust Claims
The Clayton Act authorizes simple interest on actual damages in antitrust suits, running from the date the plaintiff served the complaint through the date of judgment. The court must find the award “just in the circumstances,” and the statute lists factors tied to litigation conduct: frivolous motions filed to cause delay, violations of rules designed to keep the case moving, or conduct primarily aimed at running up costs. Interest here is not automatic; it turns on how the parties behaved.
Employment Discrimination and ERISA
Title VII does not mention prejudgment interest in its text, but federal courts consistently award it on back pay because the statute’s purpose is to make victims of discrimination whole. ERISA benefit claims follow the same logic: courts have held that the statute does not preclude prejudgment interest, and awarding it serves ERISA’s remedial purpose. The decision remains discretionary, but denial without explanation is unusual.
Claims Against the United States
Suing the federal government changes everything. The Federal Tort Claims Act waives sovereign immunity so the government can be held liable “in the same manner and to the same extent as a private individual under like circumstances,” but it carves out an explicit exception: the United States is not liable “for interest prior to judgment or for punitive damages.”1Office of the Law Revision Counsel. 28 U.S. Code 2674 – Liability of United States That prohibition covers tort claims against all federal agencies, including the Postal Service.
An FTCA plaintiff receives only the principal damages and post-judgment interest going forward. The lost time value of money before judgment is absorbed entirely by the plaintiff. In a case that takes years to resolve, that gap can be substantial. Other waivers of sovereign immunity, such as the Tucker Act for contract claims against the government, have their own rules, so availability against the United States always depends on the specific statutory waiver being invoked.
State-Law Claims in Federal Court
Federal courts hear state-law cases when the parties are citizens of different states. Under the Erie doctrine, the federal court applies the substantive law of the relevant state, and prejudgment interest is treated as substantive. That means the federal court follows the same interest rules a state court would apply: the rate, the accrual date, and any conditions on availability.
If more than one state’s law could apply, the federal court uses the choice-of-law rules of the state where it sits to pick the governing law. The outcomes can look very different depending on which state’s rules win. One state may mandate interest at 10% from the date of injury; another may award none at all for the same type of claim.
What Rate Applies
The rate is where the federal-versus-state distinction hits the plaintiff’s wallet hardest.
State Rates
When state law governs, the federal court applies whatever rate the state has established. Those rates vary widely. New York, Missouri, and Oregon set their statutory rate at 9%. California and several others go as high as 10% for certain claims. Kentucky uses 6%. Some states tie the rate to a variable index that moves with market conditions. In contract disputes, many states require the court to use the interest rate in the contract itself, which may run higher or lower than the default statutory rate.
Federal Rates
When a federal statute specifies a rate, that rate controls. When the statute is silent, courts have discretion to pick a rate that fairly compensates the plaintiff. The most common benchmarks are the post-judgment rate under 28 U.S.C. § 1961, tied to the weekly average one-year constant maturity Treasury yield (running around 3.5% to 4.5% in recent months), and the prime rate, which tends to run several points higher.2United States Courts. 28 USC 1961 – Post Judgment Interest Rates Courts sometimes choose the prime rate when the Treasury yield would under-compensate a plaintiff who had to borrow money during the waiting period.
Prejudgment Versus Post-Judgment Interest
These are separate awards with separate rules. Post-judgment interest accrues automatically once a federal court enters a money judgment, at the Treasury-yield rate fixed on the date of entry, compounded annually.2United States Courts. 28 USC 1961 – Post Judgment Interest Rates Prejudgment interest must be requested, covers the period before judgment, and may use a different rate entirely. Section 1961 governs post-judgment interest in most federal civil cases, with exceptions for internal revenue tax cases (which use the IRS underpayment or overpayment rate) and certain Court of Federal Claims matters.
How the Number Is Calculated
The formula is simple. Multiply the principal damages by the interest rate and the number of years. A $100,000 award at 4% simple interest for three years produces $12,000 in prejudgment interest, and the total judgment becomes $112,000.
Three variables drive the math:
- Principal. The damages amount set by the jury or judge. In cases with multiple categories of damages, interest may apply to some categories but not others.
- Rate. Set by statute, the court’s discretion, or state law.
- Accrual date. In most federal-question cases, interest runs from the date of injury or loss. In contract cases, it usually starts on the date of breach. Some state statutes start the clock on the filing date instead.
Interest is usually calculated as simple interest and does not compound year over year unless the governing law specifically allows compounding. On a long-running case with a large award, the difference between simple and compound interest can reach tens of thousands of dollars.
How to Request It, and by When
Prejudgment interest is not added to a judgment automatically. The winning party has to ask, either by including the request in the complaint and proposed judgment or by filing a post-trial motion. Under Federal Rule of Civil Procedure 59(e), a motion to alter or amend a judgment must be filed within 28 days after entry of the judgment.3Legal Information Institute (LII) at Cornell Law School. Rule 59 – New Trial; Altering or Amending a Judgment Miss that window and the interest can be forfeited entirely, which is an expensive oversight on a large award.
Courts have sometimes allowed interest to be added later when the party was clearly entitled to it and the omission was an oversight rather than a waiver. Relying on that is risky. The safer path is to raise it early, include a specific request in the pretrial submissions, and hand the court a completed interest calculation with the proposed judgment.
Taxes on Prejudgment Interest
Prejudgment interest is taxable as ordinary income, even when the underlying damages are tax-free. Under the Internal Revenue Code, “interest” is explicitly listed as a category of gross income.4Office of the Law Revision Counsel. 26 U.S. Code 61 – Gross Income Defined So if you win a personal physical injury case and the damages themselves are excluded from income under IRC § 104(a)(2), the prejudgment interest portion is still taxable. The IRS treats it the same as interest earned on a bank account.
Defendants or their insurers generally report prejudgment interest on Form 1099-INT or 1099-MISC, depending on how the settlement or judgment is structured. Plan for the tax bill, particularly in large cases where the interest alone can reach six figures. If your settlement lumps everything into one payment without allocating principal from interest, get a tax professional to break out the amounts correctly before filing.