The penalties for filing taxes late with the IRS include both failure-to-file and failure-to-pay penalties, plus interest on any unpaid tax balance:
- Failure-to-File Penalty: This is typically 5% of the unpaid taxes for each month or part of a month the return is late, capped at 25% of the total tax owed. If both failure-to-file and failure-to-pay penalties apply in the same month, the failure-to-file penalty is reduced by 0.5%, making the combined penalty 5% per month. If the return is more than 60 days late, the minimum penalty is the lesser of $510 (for 2025) or 100% of the unpaid tax
- Failure-to-Pay Penalty: This penalty is 0.5% of the unpaid tax for each month or part of a month the tax remains unpaid, up to a maximum of 25%. If the IRS issues a final notice of intent to levy and payment is still not made within 10 days, this rate can increase to 1% per month. If you have an installment agreement, the penalty rate may be reduced to 0.25% per month during the plan
- Interest: Interest accrues daily on the unpaid tax balance starting one day after the due date of the return and compounds until the balance is fully paid. The current interest rate is around 7-8% annually but can vary quarterly
- Maximum Combined Penalty: The total combined penalty for failure to file and failure to pay can reach up to 47.5% of the unpaid tax (22.5% from failure to file and 25% from failure to pay)
- Penalty Relief: Some taxpayers may qualify for penalty abatement (removal) if they have reasonable cause or if it is their first time missing the deadline
In summary, if you file late and owe taxes, you face a 5% monthly penalty on unpaid taxes for late filing (up to 25%), plus a 0.5% monthly penalty for late payment (up to 25%), along with accruing interest. The penalties can add up quickly, so filing and paying as soon as possible is advisable to minimize costs.
