Late Filing Penalties & Fees
What you'll pay for missing the tax deadline - and how to minimize the damage
The Three Types of Penalties
1. Failure-to-File Penalty
5% per month of unpaid tax (up to 25% total)
Charged if you don't file by deadline (April 15) or extension deadline (October 15)
2. Failure-to-Pay Penalty
0.5% per month of unpaid tax (up to 25% total)
Charged if you don't pay tax owed by April 15, even if you file extension
3. Interest
~8% annually (federal short-term rate + 3%, compounded daily)
Charged on both unpaid tax AND penalties, from due date until paid in full
Key Point:
If both failure-to-file AND failure-to-pay apply same month, failure-to-file drops to 4.5% (so total is 5% per month, not 5.5%).
Failure-to-File Penalty (The Big One)
This is the penalty you want to avoid most - it's 10x more expensive than failure-to-pay.
Calculation:
• 5% of unpaid tax per month (or part of month)
• Maximum: 25% of unpaid tax (5 months)
• Minimum: $485 or 100% of tax owed (whichever is less) if over 60 days late
Example 1: 3 Months Late
• Tax owed: $5,000
• Filed September 15 (5 months late: May, June, July, August, September)
• Failure-to-file: $5,000 × 5% × 5 months = $1,250
• Failure-to-pay: $5,000 × 0.5% × 5 months = $125
• Interest: ~$165 (8% annual on declining balance)
Total penalty: $1,540 (31% extra!)
Example 2: Over 60 Days Late
• Tax owed: $300
• Filed August 1 (70 days late)
• Normal calc: $300 × 5% × 3 months = $45
• Minimum penalty: $485 or 100% of tax
Actual penalty: $300 (100% of tax owed - the max)
Failure-to-Pay Penalty
Much gentler than failure-to-file, but still adds up over time.
Calculation:
• 0.5% of unpaid tax per month (or part of month)
• Maximum: 25% of unpaid tax (50 months)
• Drops to 0.25%/month once installment agreement approved
• Increases to 1%/month if you ignore IRS notices (Intent to Levy sent)
Good News:
This penalty is waived if you:
• File on time (or get extension)
• Paid at least 90% of tax owed by April 15
• Pay remaining balance within 180 days of deadline
Interest Charges
Interest is charged on top of everything - unpaid tax, penalties, and even interest itself (compounds daily).
| Period | Interest Rate | On $5,000 Owed |
|---|---|---|
| 3 months late | ~8% annual | ~$100 |
| 6 months late | ~8% annual | ~$200 |
| 12 months late | ~8% annual | ~$400 |
Interest Rate Changes Quarterly:
IRS adjusts rate every 3 months based on federal short-term rate. Check IRS.gov for current rate. Recent years: 7-8%.
Total Cost Examples
Worst Case: 6 Months Late, No Extension
Starting point: Owe $10,000, due April 15
Filed: October 15 (6 months late)
• Failure-to-file: $10,000 × 5% × 5 months = $2,500 (maxes at 25%)
• Failure-to-pay: $10,000 × 0.5% × 6 months = $300
• Interest on tax: ~8% for 6 months = $400
• Interest on penalties: ~$60
Total: $13,260 (33% extra cost!)
Better: Filed Extension, 6 Months to Pay
Starting point: Owe $10,000, due April 15
Filed: Extension by April 15, actual return October 15
Paid: October 15 (6 months late)
• Failure-to-file: $0 (filed extension)
• Failure-to-pay: $10,000 × 0.5% × 6 months = $300
• Interest: ~8% for 6 months = $400
Total: $10,700 (7% extra - saved $2,560!)
Best: Filed Extension, Paid April 15
Starting point: Owe $10,000, due April 15
Filed: Extension by April 15, actual return October 15
Paid: April 15 (on time)
• Failure-to-file: $0 (filed extension)
• Failure-to-pay: $0 (paid on time)
• Interest: $0
Total: $10,000 (0% extra - no penalties!)
💡 How to Minimize Penalties
1. File Extension Even If Can't Pay
Form 4868 is free and instant (on IRS.gov). Saves you 4.5%/month penalty. You still owe 0.5%/month for unpaid tax, but that's WAY better than 5%/month.
2. Pay What You Can by April 15
Even partial payment reduces penalties. If you owe $5k but can pay $3k, penalties only apply to $2k balance.
3. Request Installment Agreement
Drops failure-to-pay from 0.5% to 0.25%/month once approved. Setup fee $31-$225 depending on method. Worth it for balances over $1,000.
4. Apply for First-Time Penalty Abatement
If clean 3-year history, IRS may waive failure-to-file and failure-to-pay penalties. Call 800-829-1040 after paying or arranging payment.
5. Show Reasonable Cause
Serious illness, natural disaster, death in family, etc. can qualify for penalty relief. Need documentation. File Form 843.
6. File Even If Can't Pay Anything
Failure-to-file is 10x worse than failure-to-pay. File the return to stop the 5%/month penalty clock. Deal with payment separately.
First-Time Penalty Abatement (FTA)
If this is your first time late, IRS may completely forgive penalties (but not interest).
Qualifications:
- • You haven't been required to file returns for past 3 years, OR
- • You filed all required returns and paid (or arranged to pay) any tax due, AND
- • You have no penalties for the 3 prior years (except estimated tax penalty)
How to Request:
- Pay tax owed in full (or set up payment plan)
- Call IRS: 800-829-1040
- Say: "I'd like to request first-time penalty abatement"
- They'll review your history and approve if eligible
Example Savings:
Owed $8,000, 4 months late. Penalties: $1,600 (failure-to-file) + $160 (failure-to-pay) = $1,760.
With FTA: Penalties waived = $1,760 saved! Still owe ~$200 interest.
⚠️ Special Penalties to Avoid
Accuracy-Related Penalty (20%)
Substantial understatement of tax, negligence, or disregard of rules. Applies to underpaid amount, not just late payment.
Fraud Penalty (75%)
Willful attempt to evade tax. Criminal prosecution possible. Don't lie on tax returns!
Estimated Tax Penalty
If you underpay throughout year (W-4 withholding too low, self-employment income). Calculated on Form 2210. Usually minor.
Dishonored Check Penalty
2% of check amount (min $25) if payment bounces. Use verified payment method (direct pay, debit card).
Payment Options to Avoid More Penalties
Short-Term Payment Plan (120 days)
Owe less than $100,000? Get 4 months to pay.
- • No setup fee
- • 0.5%/month penalty continues
- • Interest ~8% continues
- • Apply online (IRS.gov)
Installment Agreement (Long-term)
Pay over time (up to 72 months).
- • Setup fee: $31 (low income) to $225
- • 0.25%/month penalty (reduced!)
- • Interest ~8% continues
- • Monthly payments via direct debit
Offer in Compromise (OIC)
Settle for less than owed if financial hardship.
- • $205 application fee
- • Requires detailed financials
- • Hard to qualify
- • Can take 6-24 months
Currently Not Collectible (CNC)
Temporary suspension of collection.
- • No fee
- • Interest & penalties still accrue
- • Must prove financial hardship
- • IRS reviews annually