The IRS charges two separate penalties when you file after the deadline

If you file your tax return after the April 15 deadline, the IRS charges a failure-to-file penalty and a failure-to-pay penalty if you owe taxes. The failure-to-file penalty is 5% of your unpaid taxes for each month or part of a month your return is late, up to a maximum of 25%. The failure-to-pay penalty is 0.5% of your unpaid taxes for each month or part of a month the payment is late, also capped at 25%. Both penalties accrue from the original due date, not from the date you actually file.

The penalties apply only if you owe taxes when you file. If you are due a refund, you will not face penalties for filing late, though you will lose the refund if you wait more than three years to file. The IRS also charges interest on any unpaid taxes from the original due date until you pay, compounded daily. Interest rates change quarterly and are currently around 8% annually, though this varies.

Key Takeaways

  • The failure-to-file penalty is 5% per month of unpaid taxes, capped at 25% total.
  • The failure-to-pay penalty is 0.5% per month of unpaid taxes, capped at 25% total.
  • Interest accrues daily on unpaid taxes from April 15 until you pay, regardless of when you file.
  • If you are due a refund, you face no penalties for filing late, but you lose the refund if you do not file within three years.
  • Filing even a few days late triggers penalties if you owe taxes, so filing as soon as possible reduces what you ultimately owe.

How the failure-to-file penalty works

The failure-to-file penalty starts accruing the day after the April 15 deadline and continues until you submit your return to the IRS. It is calculated as 5% of your unpaid tax liability for each month or partial month you are late. If you file one day late and owe $1,000, you owe a $50 penalty. If you file two months late, you owe $100. The penalty stops growing once it reaches 25% of your unpaid taxes, even if you file years later.

The penalty applies to the amount of tax you actually owe after accounting for withholding and credits. If you had $3,000 withheld from your paychecks during the year and you owe $500 after all credits, the penalty is 5% of $500, not 5% of your gross income. The IRS calculates this based on what you report on your return, so the exact penalty amount depends on what you file.

How the failure-to-pay penalty works

The failure-to-pay penalty is separate from the failure-to-file penalty and applies to any taxes you do not pay by April 15, regardless of when you file your return. It accrues at 0.5% of unpaid taxes per month, capped at 25%. If you file on time but do not pay, you still owe this penalty. If you file late and do not pay, both penalties apply simultaneously.

The failure-to-pay penalty stops accruing once you pay the full amount owed, but interest continues to accrue until payment is received. If you owe $2,000 and pay it six months late, you owe 3% in failure-to-pay penalties ($60) plus interest for those six months. The IRS applies payments first to taxes, then to penalties, then to interest, so paying as soon as you can reduces the total interest you owe.

Interest charges on late payments

Interest is separate from penalties and accrues on any unpaid tax balance from the original due date until you pay. The rate is set by federal law and changes quarterly. For 2024, the interest rate is 8% per year, compounded daily. This means the longer you wait to pay, the more interest accumulates, and that interest itself accrues interest.

Interest is not capped and will continue to grow indefinitely if you do not pay. On a $5,000 tax bill, interest alone can add hundreds of dollars over a year. Unlike penalties, you cannot avoid interest charges by filing late if you owe taxes — the only way to stop interest is to pay what you owe. The IRS will calculate the exact interest owed when you pay or when they send you a bill.

When the IRS may waive or reduce penalties

The IRS can waive the failure-to-file and failure-to-pay penalties if you have reasonable cause for filing or paying late. Reasonable cause means circumstances beyond your control that prevented you from meeting the deadline. Examples include serious illness, death in the family, unavoidable absence, or reliance on a tax professional who missed the deadline. Simple mistakes, lack of knowledge about the deadline, or financial hardship do not typically may have access to as reasonable cause.

If you have a history of filing on time and this is your first late filing, the IRS is more likely to grant relief. You must request penalty relief in writing, usually by submitting Form 843 (Claim for Refund and Request for Abatement) or by calling the IRS at 1-800-829-1040. The IRS will review your explanation and decide whether to remove or reduce the penalties. Interest cannot be waived, only penalties.

What to do if you filed late and owe taxes

File your return immediately, even if you cannot pay the full amount owed. Filing stops the failure-to-file penalty from growing, though the failure-to-pay penalty and interest will continue until you pay. The IRS will send you a bill showing the taxes owed plus penalties and interest. You have the right to pay in installments if you cannot pay in full.

If you owe more than $25,000, you can set up a payment plan through the IRS website or by phone. Short-term plans (120 days or less) have no setup fee. Long-term plans cost $31 to $225 depending on how you set them up. Interest and penalties continue to accrue while you are on a payment plan, but at least you avoid additional collection action. Paying as much as you can as soon as you can reduces the total interest and penalties you ultimately owe.

Late filing for prior years

If you did not file returns for years before the current year, you should file them as soon as possible. The failure-to-file penalty applies to each year separately, and penalties continue to accrue until you file. If you are due refunds for those years, filing immediately allows you to claim them — but only if you file within three years of the original deadline. A return for tax year 2020 must be filed by April 15, 2023 to claim the refund.

If you owe taxes for prior years, penalties and interest have been accumulating the entire time. The longer you wait, the larger the total bill becomes. The IRS can file a substitute return on your behalf if you do not file, though this return typically does not include deductions or credits you are may have access to to, resulting in a higher tax bill. Filing your own return, even years late, is almost always better than letting the IRS file for you.

Frequently Asked Questions

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

No. Penalties apply only if you owe taxes. If you are due a refund, you face no penalties for filing late. However, you will lose the refund if you do not file within three years of the original deadline. If you are due a $1,200 refund for 2021, you must file by April 15, 2024 to claim it.

How much will my penalties and interest cost if I file six months late?

It depends on how much you owe. If you owe $1,000, the failure-to-file penalty is $150 (5% × 6 months), the failure-to-pay penalty is $30 (0.5% × 6 months), and interest is roughly $40 (8% annually). Total: about $220 in penalties and interest. If you owe $5,000, penalties and interest would be roughly $1,100. The exact amount depends on the interest rate for that quarter and the exact number of days late.

Can I get the penalties removed if I have a good reason for filing late?

Possibly. The IRS may waive penalties if you had reasonable cause — serious illness, death in the family, or reliance on a tax professional who failed to file. You must request relief in writing using Form 843 or by calling 1-800-829-1040. The IRS will review your explanation. Interest cannot be waived, only penalties.

What happens if I never file a return?

The IRS can file a substitute return for you, which typically results in a higher tax bill because it does not include deductions or credits. Penalties and interest continue to accrue. The IRS can also pursue collection action, including wage garnishment and bank levies. Filing your own return, even years late, is far better than ignoring the situation.

Can I set up a payment plan if I owe penalties and interest?

Yes. You can set up a payment plan for the total amount owed, including taxes, penalties, and interest. Short-term plans (120 days or less) have no setup fee. Long-term plans cost $31 to $225. Interest and penalties continue to accrue while you are on the plan, but you avoid collection action as long as you make your payments on time.