The IRS charges two separate penalties when you miss a tax deadline: a failure-to-file penalty and a failure-to-pay penalty, plus interest on the unpaid amount.

The failure-to-file penalty is 5% of your unpaid taxes for each month or part of a month that your return is late, up to 25% total. This penalty applies whether you owe money or not — even if you are due a refund, filing late costs you. The clock starts the day after the tax deadline (usually April 15) and runs until you file.

The failure-to-pay penalty is 0.5% of your unpaid tax balance for each month or part of a month after the due date, also capping at 25%. This one only applies if you actually owe money. Both penalties can stack: if you file late and owe taxes, you pay both at the same time.

On top of penalties, the IRS charges interest on any unpaid tax from the original due date until you pay. The interest rate changes quarterly — it is the federal short-term rate plus 3%, compounded daily. For 2024, the rate is 8% per year. Interest keeps accruing until your account is settled, and unlike penalties, it has no cap.

Key Takeaways

  • Filing late costs 5% per month of unpaid taxes (up to 25%), even if you do not owe money.
  • Owing taxes but paying late costs an additional 0.5% per month (up to 25%), plus daily interest.
  • Interest accrues from the original due date and compounds daily, with no maximum limit.
  • The IRS can reduce or remove penalties if you have reasonable cause, such as a serious illness or death in your family during tax season.
  • Paying what you can, even if late, stops the failure-to-pay penalty from growing and reduces total interest owed.

How the failure-to-file penalty works

The failure-to-file penalty applies to your total unpaid tax liability. If you owe $2,000 and file one month late, the penalty is $100 (5% of $2,000). Two months late: $200. The penalty grows each month until you file or reach the 25% cap ($500 in this example).

This penalty applies even if you do not owe taxes. If you are due a $1,500 refund but file three months late, you still face a penalty — though the IRS will subtract it from your refund. You lose money by waiting.

The penalty stops accruing the day you file your return, regardless of whether you pay the balance owed. Filing stops the clock on this particular penalty, but the failure-to-pay penalty (if you owe) and interest continue to grow.

How the failure-to-pay penalty works

The failure-to-pay penalty only applies if your return shows a tax balance due. It is 0.5% of unpaid taxes per month, capping at 25%. If you owe $3,000 and pay nothing for six months, the penalty is $90 (0.5% × 6 months × $3,000). After 50 months, the penalty stops growing at $750.

This penalty is separate from the failure-to-file penalty. If you file on time but pay late, you only owe the failure-to-pay penalty. If you file late and owe money, both penalties apply simultaneously.

The failure-to-pay penalty stops growing once you pay your full balance, but interest continues to accrue until the IRS receives payment in full. Partial payments reduce the balance on which future interest is calculated, so paying something is always better than paying nothing.

Interest charges on unpaid taxes

Interest is calculated daily on your unpaid tax balance from the due date until you pay. The rate is set quarterly by the IRS and is currently 8% per year (as of 2024), though it changes based on market conditions. Unlike penalties, interest has no cap — it keeps growing as long as money is owed.

Interest compounds daily, meaning you pay interest on the interest. On a $5,000 balance at 8% annual interest, you owe roughly $41 per month in interest alone. After a year of non-payment, interest adds up to around $400 to your original debt.

The IRS applies payments first to penalties, then to interest, then to the original tax balance. This means if you owe $5,000 in tax plus penalties and interest, your first payment covers penalties first — which can feel backwards, but it is how the system works.

When the IRS may reduce or remove penalties

The IRS can remove the failure-to-file and failure-to-pay penalties if you have reasonable cause — a legitimate reason beyond your control for missing the deadline. Common reasons include serious illness or hospitalization during tax season, death of a spouse or dependent, a fire or natural disaster that destroyed your records, or reliance on a tax professional who gave you wrong advice.

You must request penalty relief in writing, usually by filing Form 843 (Claim for Refund and Request for Abatement) or by calling the IRS at 1-800-829-1040 to discuss your situation. The IRS reviews each case individually. Having a history of on-time filing helps your case, as does documenting the reason (medical records, death certificate, disaster declaration).

Interest cannot be removed, only penalties. Even if the IRS forgives penalties, you still owe the original tax plus interest from the due date.

Installment agreements and payment plans

If you cannot pay the full balance immediately, the IRS offers installment agreements that let you pay over time. A short-term agreement (120 days or less) has no setup fee. A long-term agreement (more than 120 days) costs $31 to $225 depending on how you set it up.

While you are on an installment plan, the failure-to-pay penalty drops to 0.25% per month instead of 0.5%, cutting the penalty rate in half. Interest still accrues daily on the unpaid balance. Setting up a plan shows the IRS you intend to pay, which can help if you later request penalty relief.

You can set up an installment agreement online through IRS.gov, by phone, or by mail. The IRS will tell you the monthly payment amount based on your total debt and the length of the plan you choose.

State tax penalties and interest

Most states impose their own penalties and interest on late tax payments, separate from federal penalties. State penalties vary widely — some states charge 5% per month like the IRS, others charge a flat percentage or a one-time penalty. State interest rates also differ, typically ranging from 4% to 10% per year depending on the state.

If you owe both federal and state taxes, you face both sets of penalties and interest. A state tax authority may also file a lien against your property or garnish your wages if the debt goes unpaid for long enough. Contact your state tax agency directly to learn the specific penalties and payment options in your state.

Frequently Asked Questions

Can I get the penalties removed if I file late but pay right away?

Filing late still triggers the failure-to-file penalty even if you pay immediately. However, if you have never been late before and can show reasonable cause (illness, disaster, professional error), you can request the penalty be removed by filing Form 843. Paying quickly does not automatically waive the penalty, but it stops additional penalties from accruing.

What if I cannot pay the full amount by the deadline?

File your return on time anyway. Filing on time stops the failure-to-file penalty (5% per month) from growing. You will still owe the failure-to-pay penalty (0.5% per month) and interest on the unpaid balance, but filing on time saves you money. Then set up an installment agreement to pay over time.

Does the IRS charge interest on penalties?

Yes. Interest accrues on penalties just as it does on the original tax. If you owe $1,000 in tax plus $100 in penalties, interest is calculated on the full $1,100 from the due date until you pay.

How long do I have before the IRS takes collection action?

The IRS can file a tax lien (a claim against your property) at any time after you owe taxes. However, they typically send notices and give you time to respond before taking aggressive action. If you ignore notices and do not set up a payment plan, the IRS may garnish wages or levy bank accounts after several months of non-response.

If I file an extension, do I still pay penalties for paying late?

Filing an extension (Form 4868) moves your filing deadline to October 15, but it does not extend the payment deadline — taxes are still due April 15. If you do not pay by April 15, you owe failure-to-pay penalties and interest even though your return is not due until October. The extension only gives you more time to file, not more time to pay.