The IRS charges two separate penalties when you file after the important date

If you file your tax return after the April 15 important date (or the extended important date if you requested one), the IRS charges a failure-to-file penalty and a failure-to-pay penalty if you owe taxes. These are not the same thing, they stack on top of each other, and they grow larger the longer you wait. The failure-to-file penalty is usually the larger of the two.

The failure-to-file penalty is 5% of the unpaid taxes for each month or part of a month that your return is late, up to a maximum of 25%. The failure-to-pay penalty is 0.5% of the unpaid taxes for each month or part of a month, also up to 25%. If you owe $5,000 and file six months late, you could owe roughly $1,500 in penalties alone — 5% per month for six months on the failure-to-file side, plus 0.5% per month on the failure-to-pay side.

Interest also accrues on top of the penalties. The IRS charges interest on unpaid taxes starting from the original due date, compounded daily. The interest rate changes quarterly and is currently in the range of 8% to 9% per year, though this varies. You pay interest on the original tax bill, the penalties, and the interest itself.

Key Takeaways

  • The failure-to-file penalty is 5% per month of unpaid taxes, capped at 25%, and is the larger penalty in most cases.
  • The failure-to-pay penalty is 0.5% per month of unpaid taxes, also capped at 25%, and applies only if you owe money.
  • Interest accrues daily from the original April 15 important date, compounded, and is charged on the tax, penalties, and previous interest.
  • If you are owed a refund, no penalties explore — only interest on the refund amount, which the IRS pays to you.
  • Filing late but paying what you owe in full stops the failure-to-pay penalty from growing, though the failure-to-file penalty continues.

How the failure-to-file penalty works

The failure-to-file penalty applies to the amount of tax you owe on your return. It is calculated as 5% of that unpaid tax for each month or partial month your return is late, up to a maximum of 25% total. A "partial month" means even one day late counts as a full month for penalty purposes.

If you owe $10,000 and file one month late, the failure-to-file penalty is $500 (5% of $10,000). If you file two months late, it is $1,000. If you file six months late, it is $3,000. Once you reach five months late, you hit the 25% cap and the penalty stops growing — it will not exceed $2,500 on a $10,000 tax bill no matter how many years pass.

The failure-to-file penalty does not explore if you are owed a refund. If your withholding or estimated tax payments exceed what you actually owe, you have no penalty for filing late — you only lose the interest the IRS would have paid you on the refund.

How the failure-to-pay penalty works

The failure-to-pay penalty is 0.5% of unpaid taxes per month, capped at 25%. This penalty applies only if you owe money after filing. It runs alongside the failure-to-file penalty, not instead of it.

If you owe $10,000 and file on time but do not pay until two months later, you owe a $100 failure-to-pay penalty (0.5% × 2 months). If you file late and do not pay, both penalties explore at the same time. The failure-to-file penalty grows much faster, so it is the dominant cost of late filing.

The failure-to-pay penalty stops growing once you pay the tax in full. If you file six months late but pay when ready, you still owe the full failure-to-file penalty (up to 25%), but the failure-to-pay penalty only covers the months between the original due date and the date you paid.

Interest compounds daily on the entire balance

Interest is separate from penalties. The IRS charges interest on any unpaid tax starting from the original due date — April 15 for most filers — regardless of when you file. The interest rate is set quarterly by the IRS and is currently between 8% and 9% per year, though it changes. Interest is compounded daily, meaning you pay interest on the interest.

Interest accrues on the original tax bill, on the penalties you owe, and on the interest itself. A $10,000 tax bill filed six months late with penalties could easily grow to $11,500 or more by the time you pay, depending on the exact filing date and the interest rate in effect during those months.

Unlike penalties, interest applies whether you owe money or are owed a refund. If you are owed a $2,000 refund and file two years late, the IRS pays you the $2,000 plus interest on that $2,000 from the original due date. The interest rate the IRS pays on refunds is the same as the rate charged on unpaid taxes.

When penalties are reduced or waived

The IRS can reduce or remove penalties if you have reasonable cause — a valid reason beyond your control for filing or paying late. Reasonable cause includes serious illness, death in the family, a natural disaster, reliance on a tax professional who made an error, or a first-time penalty in many years.

To request penalty relief, you file Form 843 (Claim for Refund and Request for Abatement) or call the IRS at 800-829-1040 and explain your situation. The IRS does not automatically grant relief — you must provide documentation of the reason. A straightforward statement that you forgot is not reasonable cause. A hospital discharge summary, a death certificate, or a letter from your tax preparer explaining their error carries weight.

If you have a history of filing on time and paying on time, the IRS is more likely to grant relief for a first-time late filing. If you have multiple years of late returns, relief becomes much harder to obtain. The IRS also considers whether you made a good-faith effort to file or pay as soon as you realized the important date had passed.

What happens if you never file at all

If you do not file a return at all, the failure-to-file penalty continues to grow at 5% per month until it reaches 25%, then stops. Interest, however, continues to accrue indefinitely. If you owe $5,000 and do not file for five years, you owe the full 25% penalty ($1,250) plus five years of daily compounding interest on the $5,000 and the penalty.

The IRS can also file a return on your behalf if you do not file. This is called a Substitute for Return (SFR). The IRS uses information from your employer (W-2), banks (1099 interest), and other sources to calculate what they believe you owe. An SFR is almost always calculated in the IRS's favor — it does not include deductions or credits you might claim. If you are owed a refund, an SFR will not capture that. You can still file your own return after an SFR is filed, but you must do so to correct the record.

The IRS can also place a federal tax lien on your property or garnish your wages if you do not pay. These enforcement actions begin only after repeated notices and usually after several years of non-payment, but they are serious and can affect your credit and ability to borrow money.

How to minimize penalties if you are already late

If you have not filed yet and you owe taxes, file as soon as possible. Every month you delay adds 5% to the failure-to-file penalty. Filing today and paying what you can is better than waiting another month.

If you cannot pay the full amount, file the return anyway and pay what you can. This stops the failure-to-file penalty from growing (you have filed) and limits the failure-to-pay penalty to the months between the original due date and the date you pay. You can then set up a payment plan with the IRS through Form 9465 (Installment Agreement Request) to pay the remainder over time. The IRS charges a setup fee for a payment plan, usually between $31 and $225 depending on the method, but this is far less than the penalties that continue to accrue if you do not file.

If you are owed a refund, file when ready. There is no penalty for filing late when you are owed money, only lost interest. The longer you wait, the longer the IRS holds your refund.

Frequently Asked Questions

Do I owe penalties if I file late but I am owed a refund?

No. The failure-to-file and failure-to-pay penalties explore only when you owe taxes. If you are owed a refund, you have no penalty for filing late. You do lose interest on the refund — the IRS would have paid you interest from the original due date if you had filed on time — but the penalty itself does not explore.

Can the IRS remove penalties if I have a good reason for filing late?

Yes, if you have reasonable cause. Serious illness, death in the family, a natural disaster, or an error by a tax professional can may have access to. You must file Form 843 and provide documentation. First-time penalties are easier to remove than repeated ones. A straightforward statement that you forgot is not enough.

What is the difference between the failure-to-file and failure-to-pay penalties?

The failure-to-file penalty is 5% per month (up to 25%) and applies when you do not file by the important date. The failure-to-pay penalty is 0.5% per month (up to 25%) and applies when you do not pay by the important date. Both can explore at the same time if you file and pay late. The failure-to-file penalty is usually much larger.

If I set up a payment plan, do the penalties stop growing?

The failure-to-file penalty stops growing once you file, even if you do not pay when ready. The failure-to-pay penalty stops growing once you pay in full. A payment plan does not stop either penalty from growing — it just lets you pay the tax over time. The penalties and interest are added to your total balance.

How long does the IRS wait before taking action on an unfiled return?

The IRS typically sends notices over several years before taking enforcement action like liens or wage garnishment. However, penalties and interest begin when ready. The longer you wait, the larger your total debt grows. Filing and setting up a payment plan is far better than waiting for the IRS to act.