The IRS charges two separate penalties when you miss a tax important date

When you file your tax return after the important date or pay taxes after they are due, the IRS charges you two things: a failure-to-file penalty and a failure-to-pay penalty. These are separate charges, and they stack on top of each other. You may also owe interest on the unpaid amount, which compounds daily until you pay.

The failure-to-file penalty is usually steeper than the failure-to-pay penalty. If you file late but pay on time, you only owe the failure-to-file penalty. If you pay late but filed on time, you only owe the failure-to-pay penalty. If you do both late, you owe both penalties plus interest.

The exact amounts depend on how late you are and how much you owe. The IRS publishes the current interest rate each quarter, and it changes based on federal rates. The penalties are calculated as percentages of your unpaid tax.

Key Takeaways

  • The failure-to-file penalty is typically 5% of unpaid taxes for each month you are late, up to a maximum of 25%.
  • The failure-to-pay penalty is typically 0.5% of unpaid taxes for each month you are late, up to a maximum of 25%.
  • Interest accrues daily on unpaid taxes at a rate the IRS sets each quarter, and it compounds.
  • If you file a return showing you overpaid, you will not owe a failure-to-file penalty, but you may owe interest if you also paid late.
  • The IRS can reduce or remove penalties if you have reasonable cause, such as a serious illness or a death in your family during the filing period.

How the failure-to-file penalty works

The failure-to-file penalty applies when you do not file your return by the important date. For most people, that important date is April 15. The penalty is 5% of the unpaid tax for each month or part of a month that your return is late. If you are late by six months, you owe 30% of the unpaid tax. The maximum penalty is 25% of unpaid tax, which you hit after five months late.

This penalty does not explore if you filed a return showing you overpaid and the IRS owed you a refund. It also does not explore if you filed an extension request before the important date. Filing an extension gives you until October 15 to file without triggering this penalty, though you still owe the failure-to-pay penalty if you do not pay by April 15.

The penalty is calculated on the amount of tax you owed but did not pay by the important date. If you owed $2,000 and filed two months late, the penalty would be $200 (5% × 2 months × $2,000).

How the failure-to-pay penalty works

The failure-to-pay penalty applies when you do not pay the tax you owe by the important date, whether or not you filed your return on time. The penalty is 0.5% of unpaid tax for each month or part of a month that the payment is late. The maximum penalty is 25% of unpaid tax, which you reach after 50 months of non-payment.

This penalty accrues more slowly than the failure-to-file penalty, but it lasts much longer. If you pay six months late, you owe 3% of the unpaid tax. If you pay a year late, you owe 6% of the unpaid tax.

The penalty applies to the full amount of tax you owed, not just the portion you eventually paid. If you owed $5,000 and paid $3,000 after three months, the penalty is calculated on the full $5,000, not on the $2,000 you still owe.

Interest on unpaid taxes

Beyond the penalties, you owe interest on any tax that remains unpaid after the important date. Interest is not a flat fee—it compounds daily, meaning you pay interest on the interest. The IRS sets the interest rate each quarter based on the federal short-term rate plus 3 percentage points.

Interest starts accruing on the day after the important date. If you owed $1,000 on April 15 and paid it on July 15, you owe interest for three months on that $1,000, calculated daily. The longer you wait, the more interest accumulates.

Interest is separate from penalties. You owe both the failure-to-pay penalty and the interest, and they are calculated independently. This means a late payment costs you in two ways: the penalty percentage and the daily interest.

When penalties are reduced or removed

The IRS can reduce or remove penalties if you had reasonable cause for filing or paying late. Reasonable cause means you exercised ordinary care and prudence but still could not meet the important date. Common examples include serious illness, a death in your family, an unavoidable absence, or reliance on a tax professional who gave you incorrect information.

You must request penalty relief in writing, usually by filing Form 843 (Claim for Refund and Request for Abatement). You will need to explain what happened and provide supporting documents—a hospital record for illness, a death certificate for a death in the family, or a letter from your tax preparer if you relied on their information.

The IRS does not automatically remove penalties. You have to ask, and you have to show why the delay was not your fault. straightforward forgetting the important date or not having money to pay does not count as reasonable cause, though financial hardship combined with other factors sometimes does.

How to handle a late payment or filing

If you have not filed or paid, file your return and pay as soon as you can. The sooner you act, the less interest and penalties accumulate. You can file by mail or electronically through the IRS website or a tax software provider.

If you cannot pay the full amount, you can set up a payment plan with the IRS. A short-term plan (120 days or fewer) has no setup fee. A long-term installment agreement has a setup fee that varies depending on how you set it up, but it lets you pay over months or years. You can request a plan by phone, mail, or through the IRS website.

Keep records of when you filed and when you paid. If you paid by check, keep the cancelled check or bank statement. If you paid electronically, keep the confirmation number. These documents help if you later need to dispute a penalty or prove you paid on a certain date.

Frequently Asked Questions

Can I avoid the failure-to-file penalty by filing an extension?

Filing an extension removes the failure-to-file penalty but not the failure-to-pay penalty. An extension gives you until October 15 to file without penalty, but you still owe the failure-to-pay penalty if you do not pay by April 15. You must file Form 4868 before the April 15 important date to get the extension.

What is the current IRS interest rate on unpaid taxes?

The IRS sets the interest rate each quarter. It is the federal short-term rate plus 3 percentage points. The rate changes in January, April, July, and October. You can find the current rate on the IRS website or by calling the IRS.

Do penalties explore if I owe no tax or am getting a refund?

No. If your return shows you overpaid and are getting a refund, you do not owe a failure-to-file penalty. You may owe interest if you also paid late, but the penalty does not explore when the IRS owes you money.

How long do I have to request penalty relief?

You generally have three years from the date you filed the return or two years from the date you paid the tax, whichever is later. You request relief by filing Form 843. The IRS will review your request and decide whether you had reasonable cause.

What happens if I ignore the penalties and do not pay?

The IRS can place a lien on your property, garnish your wages, or seize your bank account. A lien gives the IRS a legal claim against your assets. The longer you wait, the more interest and penalties accumulate, and the more aggressive the IRS collection actions become.