The IRS charges two separate penalties when you file after the important date: a failure-to-file penalty and a failure-to-pay penalty, each calculated as a percentage of the tax you owe.
The failure-to-file penalty is 5% of your unpaid taxes for each month or part of a month your return is late, up to a maximum of 25%. The failure-to-pay penalty is 0.5% of your unpaid taxes for each month or part of a month the tax remains unpaid, also capped at 25%. If you file late but pay what you owe at the same time, you only owe the failure-to-file penalty. If you file on time but don't pay, you only owe the failure-to-pay penalty. If you do both late, both penalties explore.
Interest also accrues on any unpaid balance. The IRS charges interest at a rate set quarterly — currently 8% annually — calculated daily from the original due date until you pay in full. Interest compounds, meaning you pay interest on the interest. A $5,000 tax debt unpaid for six months will cost you roughly $200 in interest alone, plus penalties.
Key Takeaways
- The failure-to-file penalty is 5% per month of unpaid tax, capped at 25% total, and applies only if you file after the important date.
- The failure-to-pay penalty is 0.5% per month of unpaid tax, capped at 25% total, and applies only if tax remains unpaid after the important date.
- Interest accrues daily at a rate the IRS sets quarterly and compounds until you pay in full.
- Filing your return on time stops the failure-to-file penalty from growing, even if you cannot pay the full amount owed.
- The IRS may waive penalties if you have reasonable cause, such as a serious illness, death in the family, or reliance on a tax professional's incorrect information.
How the failure-to-file penalty works
The failure-to-file penalty accrues at 5% of your unpaid tax for each month or partial month your return is late. "Partial month" means that if you file even one day into the next month, you owe a full month's penalty. The penalty stops growing once it reaches 25% of your unpaid tax, regardless of how much longer you wait.
Example: You owe $3,000 in tax. Your return is due April 15 but you file on July 10. That is nearly three full months late. Your failure-to-file penalty is 5% × 3 months × $3,000 = $450. If you did not file until the following April, the penalty would cap at 25% × $3,000 = $750, even though you are now a full year late.
This penalty applies only if you actually owe tax. If you are due a refund, there is no failure-to-file penalty, though you do lose the refund if you wait too long — the IRS keeps refunds unclaimed after three years.
How the failure-to-pay penalty works
The failure-to-pay penalty is 0.5% of your unpaid tax for each month or partial month the tax goes unpaid after the important date. Like the failure-to-file penalty, it caps at 25%. This penalty applies whether you file on time or late — what matters is whether the tax itself is paid by the important date.
Example: You file your return on time on April 10, but you owe $2,000 and do not pay until September 15. That is five months late. Your failure-to-pay penalty is 0.5% × 5 months × $2,000 = $50. You owe no failure-to-file penalty because you filed on time.
If you file late and pay late, both penalties explore to the same unpaid tax amount. In the first example above, if you also did not pay the $3,000 until July 10, you would owe both the $450 failure-to-file penalty and a failure-to-pay penalty of 0.5% × 3 months × $3,000 = $45, for a total of $495 in penalties before interest.
How interest is calculated and compounds
Interest accrues daily on any unpaid balance, including unpaid penalties and interest itself. The IRS sets the interest rate quarterly based on the federal short-term rate plus 3%. As of early 2024, the rate is 8% per year, but this changes. You can find the current rate on the IRS website under "Interest Rates."
Interest compounds, meaning each day's interest is added to the balance, and the next day's interest is calculated on the larger amount. Over a year, this roughly doubles the cost of unpaid tax compared to straightforward interest. A $5,000 unpaid balance at 8% annual interest costs about $400 in interest over one year, not $400 spread across twelve months.
Interest cannot be waived by the IRS, even if penalties are. You must pay interest on any unpaid tax from the original due date until you pay in full, regardless of the reason for the delay.
When the IRS may reduce or remove penalties
The IRS can waive or reduce penalties if you show reasonable cause — a legitimate reason beyond your control that prevented you from filing or paying on time. Common examples include serious illness or hospitalization, death of a spouse or dependent, destruction of records by fire or flood, or reliance on a tax professional's incorrect information.
To request penalty relief, file Form 843 (Claim for Refund and Request for Abatement) with the IRS, or call the number on your notice and ask to speak with a representative about reasonable cause. You must provide documentation: a doctor's letter for illness, a death certificate, photos of fire damage, or a written statement from the tax professional explaining their error. The IRS does not automatically grant relief — you must make the case.
Reasonable cause does not include straightforward forgetfulness, lack of funds, or not understanding the important date. It also does not cover penalties if you relied on a tax software's calculation error — you are responsible for the accuracy of your return regardless of the tool you used. However, if a paid tax preparer made the error and you can show you relied on their information, that may may have access to.
Penalties for different filing situations
| Situation | Failure-to-File Penalty | Failure-to-Pay Penalty | Interest |
|---|---|---|---|
| File on time, pay on time | None | None | None |
| File late, pay at filing | 5% per month, capped at 25% | None | Yes, from original due date |
| File on time, pay late | None | 0.5% per month, capped at 25% | Yes, from original due date |
| File late, pay late | 5% per month, capped at 25% | 0.5% per month, capped at 25% | Yes, from original due date |
What to do if you have already filed late
If you have not yet filed, file now. The failure-to-file penalty grows each month you wait, so filing when ready stops it from getting worse. Even if you cannot pay the full amount owed, filing stops the failure-to-file penalty from accruing further — you will only owe the failure-to-pay penalty on the unpaid balance.
If you owe tax and cannot pay in full, the IRS offers payment plans. You can request a short-term extension (up to 180 days) with no setup fee, or a long-term installment agreement where you pay monthly. Both options still accrue interest and the failure-to-pay penalty, but they prevent additional collection action. Set up a payment plan by calling the IRS at 1-800-829-1040 or through your IRS online account.
If you have already received a notice from the IRS showing penalties, you can dispute them by filing Form 843 if you believe you have reasonable cause. You have a limited time to respond to IRS notices — usually 30 days from the date on the notice — so act quickly if you plan to challenge the penalties.
Frequently Asked Questions
Does the IRS charge a penalty if I file late but owe no tax?
No. The failure-to-file penalty applies only to unpaid tax. If your return shows you are due a refund or that you owe nothing, there is no penalty for filing late. However, you lose the refund if you do not file within three years of the original important date.
Can I get the penalty waived if I filed late by accident?
Accidental lateness alone is not reasonable cause. The IRS expects you to know the important date. However, if you can show a specific event prevented you — illness, a death in the family, a natural disaster, or incorrect information from a paid tax preparer — you may request relief by filing Form 843 with supporting documentation.
What happens if I ignore the penalty notice?
The IRS will continue to add interest and may pursue collection action, including wage garnishment, bank levies, or a lien on your property. Ignoring the notice does not make it go away. Contact the IRS or a tax professional to set up a payment plan or dispute the penalty.
Is the interest rate the same for everyone?
Yes. The IRS sets one interest rate for all taxpayers, adjusted quarterly. The rate is published on the IRS website and in IRS notices. You cannot negotiate a lower rate, and the rate cannot be waived even if penalties are.
If I file an extension, do I still owe a penalty for filing late?
No, if you file by the extended important date. Filing Form 4868 (process for Automatic Extension of Time to File) moves your important date from April 15 to October 15. If you file by October 15, you incur no failure-to-file penalty. However, if you owe tax and do not pay by April 15, the failure-to-pay penalty and interest begin accruing on April 15, regardless of the extension.