The IRS charges a failure-to-file penalty if you do not submit your tax return by the deadline, even if you owe no tax or are due a refund
The failure-to-file penalty is 5% of the unpaid tax for each month or part of a month your return is late, up to a maximum of 25%. This penalty applies whether you file on paper or electronically. The clock starts the day after the deadline — typically April 15 — and runs until the IRS receives your return.
If you owe tax and do not pay it by the deadline, you face a separate failure-to-pay penalty of 0.5% per month, also capped at 25%. If both penalties apply at the same time, the failure-to-file penalty drops to 4.5% per month so the combined rate does not exceed 5%. The IRS charges interest on top of both penalties, compounded daily at a rate set quarterly.
The penalty does not apply if you filed late but had a valid reason the IRS accepts, such as a natural disaster, serious illness, or death in your immediate family. You must document the reason and submit it with your return or in writing afterward.
Key Takeaways
- The failure-to-file penalty is 5% of unpaid tax per month, capped at 25% total, and starts the day after your deadline passes.
- A separate failure-to-pay penalty of 0.5% per month applies if you owe tax and do not pay by the deadline, also capped at 25%.
- Interest accrues on unpaid tax and penalties combined, calculated daily at a rate the IRS sets each quarter.
- You can avoid the penalty if you had a documented hardship such as serious illness, death in the family, or a natural disaster.
How the IRS calculates the failure-to-file penalty
The penalty is straightforward math: take the tax you owe, multiply by 5%, and multiply by the number of months late. A month counts as a full month even if you file only one day into it. If you owe $2,000 and file three months late, the penalty is $2,000 × 0.05 × 3 = $300.
Once the penalty reaches 25% of your unpaid tax, it stops growing. If you owe $2,000, the maximum penalty is $500, whether you file four months late or two years late. The IRS does not charge additional penalties for extreme lateness beyond that cap.
When the failure-to-pay penalty applies instead
If you file on time but do not pay the tax you owe, the failure-to-pay penalty is 0.5% per month on the unpaid amount. This penalty also caps at 25%. It accrues separately from the failure-to-file penalty, though if both apply, the failure-to-file rate drops to 4.5% so the combined monthly rate stays at 5%.
Setting up a payment plan with the IRS does not stop the failure-to-pay penalty from accruing, but it can reduce the penalty if you pay within a certain timeframe. The IRS also charges interest on the unpaid tax itself, separate from the penalty.
Interest charges on late tax and penalties
The IRS charges interest on any unpaid tax from the due date until you pay, calculated daily. The interest rate changes quarterly and is currently between 8% and 10% annually, depending on whether you are an individual or a business. Interest compounds daily, meaning you pay interest on the interest.
Interest accrues on penalties as well as on the original tax owed. If you owe $2,000 in tax plus a $300 penalty, interest is calculated on the full $2,300. Over time, interest can exceed the penalty itself, especially if you wait years to file or pay.
Reasons the IRS may waive or reduce penalties
The IRS can waive the failure-to-file penalty if you show reasonable cause — a legitimate reason beyond your control that prevented you from filing. Common reasons include serious illness or hospitalization, death of a spouse or dependent, fire or natural disaster, or reliance on a tax professional who missed the deadline.
You do not need to request a waiver in advance. File your return and include a written explanation of the reason for the delay. The IRS will review it and may remove the penalty. If you disagree with a penalty the IRS assessed, you can request reconsideration by mail or through the IRS website.
The IRS rarely waives interest charges, since interest is not technically a penalty — it is the cost of using the government's money. However, if the IRS made an error in calculating the interest or penalty, you can request a correction.
What happens if you file years late
If you file many years after the deadline, the failure-to-file penalty still caps at 25% of unpaid tax. However, the longer you wait, the more interest accumulates. A $2,000 tax debt with interest and penalties can grow to $3,500 or more over five years.
Filing late does not prevent you from receiving a refund if you are due one. The IRS will process your return and send the refund, though it may hold the refund to cover any other tax debts you owe. If you are due a refund, filing late costs you only the interest on the tax you owed — there is no failure-to-file penalty if you owe no tax.
Frequently Asked Questions
Do I owe a late-filing penalty if I am due a refund?
No. The failure-to-file penalty only applies if you owe tax. If your return shows a refund, you face no penalty for filing late. You do lose the interest the IRS would have paid you on that refund, but the IRS does not charge you a penalty.
Can I get the penalty removed if I filed late by accident?
You can request removal by explaining the reason in writing with your return or in a separate letter. The IRS considers reasons like serious illness, death in the family, or reliance on a tax professional. Simple forgetfulness is harder to defend, but you can still ask.
Does the penalty keep growing forever?
No. The failure-to-file penalty stops at 25% of your unpaid tax. The failure-to-pay penalty also caps at 25%. Interest, however, continues to accrue daily for as long as you owe the tax, even after the penalties max out.
What if I set up a payment plan?
Setting up a payment plan does not remove or reduce the penalties or interest already owed. However, it stops additional failure-to-pay penalties from accruing once you are on the plan, and it shows the IRS you are making a good-faith effort to pay, which can help if you later request a penalty waiver.