IRS Penalties and Interest Explained

If you owe the Internal Revenue Service (IRS) after the filing deadline, the IRS may add two types of charges to your tax bill: penalties and interest. IRS penalties are fees for missing a tax deadline, while interest is an ongoing charge that accrues on your unpaid tax (similar to what you might see on a credit card balance).

Knowing how IRS penalties and interest work under current tax laws can help you make better filing decisions and save you money in the long run. Let’s look at IRS interest rates and penalties and how to minimize costs if you can’t pay on time.

At a glance:

The failure-to-file penalty is usually higher than the failure-to-pay penalty, so filing on time often saves you money, even if you can’t pay in full.

When both penalties apply in the same month, the IRS typically reduces the failure-to-file penalty slightly, so you’re not charged both penalties at full rates.

Interest compounds daily and may change quarterly based on IRS quarterly interest rates.

Filing your return usually stops the biggest penalty from growing. From there, paying what you can or setting up a payment plan may help limit additional charges.

IRS penalties vs. interest on your tax bill

IRS penalties are fees the IRS charges when you don’t meet tax requirements, such as filing or paying on time. Penalties and interest both increase what you owe, but they work differently:

Penalties apply when you miss a specific requirement, like filing your return late or paying after the deadline.

Interest acts more like a financing charge on your unpaid balance and continues to grow until you pay it off.

Unlike penalties, IRS interest compounds daily, meaning each day’s interest builds on your existing balance (including any interest already added). Over time, that can add up faster than you might expect.

To make things even trickier, once the IRS finalizes certain penalties, interest can start applying to those penalties, too.

IRS interest vs. penalties quick comparison

FeatureIRS tax penaltiesIRS interestWhat it isFee for failing to file your tax return and/or pay your balance due before the tax deadlineCost of carrying an unpaid balanceWhen it startsAfter a missed deadlineAs long as a balance remainsHow it growsUsually monthlyCompounds dailyWhen it’s dueFailure to file: Due on the return date (or extended return date if you filed an extension) Failure to pay: Due on the date the IRS sends you a notice or assesses the penaltyDue as it accrues and continues daily until fully paid

IRS late fees and penalties explained

Failure-to-file penalty (late filing)

The failure-to-file penalty is essentially the penalty for not filing taxes (such as your individual Form 1040). It’s also sometimes called the delinquency penalty or late filing penalty. You’ll get a notice from the IRS if this penalty applies to you — usually when you don’t submit your tax return by the deadline (including extensions).

Here’s how the late filing penalty typically works:

The IRS calculates the penalty based on the tax you still owe after available refundable tax credits and payments.

The penalty is usually 5% of your unpaid tax for each month or part of a month your return is late.

It caps out at about 25% of your unpaid tax, meaning it maxes out after five months.

If your return is more than 60 days late, a minimum penalty may apply. For tax year 2025 filings, that’s generally $525 or 100% of the unpaid tax (whichever is less).

Even being a few days late can count as a full month, which means this penalty can add up quickly.

Tax tip: Filing your return (even if you can’t pay) stops the failure-to-file penalty from growing, which can save you a significant amount.

Failure-to-pay penalty (IRS late fee penalty)

The IRS late fee penalty many taxpayers ask about is actually called the failure-to-pay penalty, which applies when you file your return but don’t pay your full tax bill by the deadline (typically April 15 for individual income tax returns). The IRS will send you a notice if you owe this penalty.

Here’s what to know:

The standard late payment penalty rate is about 0.5% of your unpaid tax per month (or part of a month).

Like the late filing penalty, it also caps out at 25% of your unpaid tax.

If you filed on time and set up an IRS-approved payment plan, the rate may drop to 0.25% per month while the installment agreement is active.

If you don’t pay your tax 10 days after getting an IRS late payment notice, the penalty may increase to 1% per month (or partial month).

Full monthly charges apply, even if you pay your tax liability in full before the month ends.

Keep in mind, these rates generally apply to the tax you reported on your return but didn’t pay. If the IRS later determines you underreported income or owed more than you originally reported, different penalties may apply — see the IRS official website (irs.gov) for more details on this scenario.

Tax tip: You may be able to remove or reduce some penalties if you can show reasonable cause for why you weren’t able to meet your tax obligations (discussed later).

When both IRS penalties apply in the same month

If you file late and don’t pay, both penalties can apply, but the IRS typically reduces the failure-to-file penalty by subtracting the late payment penalty overlap.

So instead of adding 5% for late filing and 0.5% for late payment separately, you’ll typically see about 4.5% for failure to file and 0.5% for failure to pay. Essentially, you’re getting a slight “discount” on your late filing penalty to account for the additional late payment penalty.

Remember, the failure-to-file penalty reaches its maximum quickly (often within five months), while the failure-to-pay penalty continues until your balance is paid in full. The first step toward minimizing your penalties is to file your return, then focus on paying what you can toward your balance.

Failure-to-file penalty vs. failure-to-pay penalty comparison

IRS termOther common namesTypical monthly rateRate changesMaximum penaltyWhat stops itFailure to file penaltyPenalty for not filing taxes, late filing penalty, delinquency penalty5% of unpaid tax per monthReduced to 4.5% per month when combined with failure-to-pay in the same month25% of unpaid tax (plus minimum penalty if over 60 days late)Filing your returnFailure to pay penaltyLate payment penalty or IRS late fee penalty0.5% of unpaid tax per monthCan increase to 1% per month if you don’t pay within 10 days of an IRS notice; may drop to 0.25% with an approved payment plan25% of unpaid taxPaying your tax balance in full

Underpayment penalty for estimated taxes

If you’re self-employed, have side income, or earn investment income, you may need to make quarterly estimated tax payments. But if you don’t make these payments or don’t pay enough taxes throughout the year, the IRS may charge an underpayment of estimated tax penalty, even if you eventually pay everything you owe when you file your return.

What is the IRS penalty for underpayment?

The IRS generally calculates this penalty by comparing how much you paid throughout the year (through withholding and estimated payments) to how much you were required to pay as you earned income. This is often evaluated using Form 2210, which determines whether you met minimum payment thresholds.

Tax tip: Adjust your Form W-4 withholding or increase your estimated payments during the year to avoid any underpayment surprises when you file your return.

IRS penalty relief

In some cases, the IRS may remove or reduce penalties through penalty relief methods. There are a couple of common ways this can happen, depending on your situation.

First-time penalty relief

Your first option is the First-Time Abate program, designed for taxpayers who usually stay compliant but made a one-time mistake.

First-time relief is usually just a one-time consideration. You may be eligible if you have a history of good tax compliance (generally for the past three years) or if you were not previously required to file a return. If you meet these criteria, the IRS may remove certain penalties, including failure-to-file and failure-to-pay penalties, for one tax period.

Reasonable cause relief

If you don’t qualify for first-time relief, you may still be able to request penalty relief based on reasonable cause.

“Reasonable cause” means you had a valid reason for missing a deadline despite making a good-faith effort to comply. This isn’t automatically granted — you’ll need to explain your situation and provide supporting details.

Common reasons for reasonable cause relief may include:

Serious illness or hospitalization

Natural disasters or other unexpected events

Death or serious illness of an immediate family member

Records destroyed or unavailable due to circumstances beyond your control

System issues that delayed timely e-filing or payment

The IRS reviews these requests on a case-by-case basis, so clear documentation can make all the difference.

What penalty relief does (and doesn’t do)

It can remove penalties, which may also reduce any interest tied to those penalties.

It does not remove interest on the underlying tax balance.

It only applies to specific situations.

How to request penalty relief

Abatement must be requested in a signed, written statement mailed to the service center where you would be required to file a current year tax return. If the request is in response to an IRS notice, the statement should be sent to the address shown on the notice.

Note: If your request does not pass the IRS First-Time Abate analysis, your eligibility for relief will depend on the reasonable cause you provide, so be sure to still include a clear explanation of any reasonable cause for not paying or filing (if applicable) in your written statement.

IRS interest explained

The IRS charges interest on underpayments, which generally starts on the return due date of the amount you owe.

How much interest does the IRS charge?

The IRS interest rate isn’t fixed; it changes every quarter according to federal rules.

It works like this:

The IRS publishes updated IRS interest rates each quarter, which are used to calculate interest on unpaid balances.

Interest compounds daily, meaning it accumulates every day your balance remains unpaid.

For example, recent underpayment rates for individuals ranged from 6% to 7% in early 2026, depending on the quarter. Interest rates are adjusted every quarter to align with fluctuations in the Treasury market, as set by policymakers.

Best ways to minimize IRS interest

Unlike some penalties, interest is harder to avoid, but you still have a few ways to limit it. Here are four good options depending on your situation.

1. Pay your balance as soon as possible.

The fastest way to stop interest is to pay your tax bill in full. Once your balance hits zero, interest stops accruing. You can pay your balance in full on the IRS website, or check out 7 Ways to Pay Your Income Tax Bill.

2. Set up a payment plan if needed.

If you can’t pay everything right away, consider an IRS payment plan (installment agreement). You’ll still owe interest on the remaining balance, but paying it down over time can help you avoid larger penalties and keep things manageable.

TaxAct® can help you set up an IRS payment plan when you file using our tax preparation software.

3. Reduce the underlying balance.

Interest is based on what you owe, so lowering your tax bill or penalties can reduce the total interest, too. For example, if you are able to reduce the amount of penalties owed by filing an amended return or qualifying for penalty relief, the IRS will reduce any related interest.

4. Dispute interest (in limited situations).

The IRS may adjust or remove interest if it was charged due to “an unreasonable error or delay by an IRS officer or employee” through a process called interest abatement. This type of relief is not available for general hardship or reasonable cause, unlike some penalty relief.

If you believe interest was applied incorrectly due to an IRS issue, you can request a review by filing Form 843, Claim for Refund and Request for Abatement.

How to calculate IRS penalties and interest

If you’ve searched for an IRS penalty calculator or tax underpayment penalty calculator or simply wondered how these charges are calculated, the answer isn’t always straightforward.

Failure-to-file penalties are typically calculated monthly based on a percentage of your unpaid tax.

Failure-to-pay penalties are also calculated monthly, but at a lower rate.

IRS interest is calculated daily using a quarterly rate, with compounding (meaning each day builds on the last).

Because these charges can overlap (and interest rates can change), your total balance may not be easy to estimate with a quick calculation. If you want a clearer picture of your balance, check IRS topic pages for current interest rates and log into your IRS account to view your balance and any associated penalties and interest.

Many online tools labeled as “IRS penalty calculator” or “IRS interest calculator” provide only estimates, since the actual totals depend on timing, payments, and IRS adjustments.

Common myths about IRS penalties

Myth 1: An extension gives you more time to pay.

This is a common misconception. Filing Form 4868 to request a tax extension gives you more time to file your return, but your payment is still due by the original deadline (typically April 15, or the next business day if the 15th falls on a weekend or holiday).

Myth 2: Ignoring IRS notices makes the problem smaller.

Unfortunately, ignoring IRS notices usually does the opposite. Penalties and interest keep growing until you take action, either by paying what you owe or requesting penalty relief.

Myth 3: Partial payments don’t help.

Partial payments definitely help! Paying even a portion of your tax bill reduces your balance, which lowers both interest and future penalties. It’s always a good idea to pay as much as you can to lower your balance, even if you can’t pay in full.

6 steps to take if you missed a tax deadline

Gather your documents.

File your return ASAP.

Pay what you can now.

Set up a payment plan if needed.

Read all IRS notices, if applicable.

Document your situation if requesting relief.

FAQs about IRS penalties

How much interest does the IRS charge?

The IRS sets interest rates quarterly, and they typically fall in the mid-single digits annually. Interest also compounds daily.

IRS penalties are fees the IRS charges when you don’t follow tax rules, such as filing your return late, not paying your tax bill on time, or underpaying taxes during the year. These penalties are separate from IRS interest, which is charged on unpaid balances and continues to grow until your tax is fully paid.

What is the penalty for not filing taxes?

The failure-to-file penalty is usually 5% of your unpaid tax per month, up to 25%. If you’re more than 60 days late, a minimum penalty may apply.

If you overpaid your taxes and are owed a refund, the failure-to-file penalty does not apply.

What is the late fee for filing taxes?

There isn’t a single flat “late fee” for filing your taxes late. Instead, the IRS may charge a failure-to-file penalty, a failure-to-pay penalty, and interest on your unpaid balance. These charges can stack over time, which is why filing as soon as possible (even if you can’t pay) can help reduce what you owe.

What triggers an IRS underpayment penalty?

You may owe an underpayment penalty if you didn’t pay enough tax throughout the year through withholding or estimated payments. This often applies to self-employed individuals, freelancers, or those with significant investment income. Even if you pay your full balance when filing your return, the IRS may still charge this penalty if payments weren’t made on time during the year.

Can the IRS waive penalties and interest?

The IRS may waive penalties in certain situations, such as through first-time penalty relief or reasonable cause relief. However, interest is rarely waived and is usually only reduced if it was caused by an IRS error or delay.

Can IRS interest be removed?

Only in rare cases, such as an error or delay on the IRS’s end.

Can you go to jail for not paying taxes?

In most cases, simply not being able to pay your taxes does not lead to jail time. The IRS typically focuses on collecting what you owe through penalties, interest, and payment plans. Criminal penalties are generally reserved for cases involving tax fraud or intentional tax evasion.

Should you file if you can’t pay?

Yes. The late filing penalty is generally greater than the late payment penalty, so filing your return can greatly reduce penalties even if you can’t pay right away. You can always explore payment plans after filing, if needed!

The bottom line

If you’re behind on taxes, the best move is to act sooner rather than later. Filing your return can stop the biggest penalties from growing, and even small payments toward your balance can reduce how much interest and late payment penalties you’ll owe over time. Whether you’re filing, setting up a payment plan, or exploring penalty relief, simply taking that first step can end up saving you money and stress in the long run.

This article is for informational purposes only and not legal or financial advice.

All TaxAct offers, products and services are subject to applicable terms and conditions.

Citations

Internal Revenue Service. “About Form 1040.” Internal Revenue Service, www.irs.gov/forms-pubs/about-form-1040. Accessed 12 May 2026.Internal Revenue Service. “About Form 4868.” Internal Revenue Service, www.irs.gov/forms-pubs/about-form-4868. Accessed 12 May 2026.Internal Revenue Service. “Failure to File Penalty.” Internal Revenue Service, 7 Feb. 2026, www.irs.gov/payments/failure-to-file-penalty.Internal Revenue Service. “Failure to Pay Penalty.” Internal Revenue Service, 22 Apr. 2026, www.irs.gov/payments/failure-to-pay-penalty.Internal Revenue Service. “Interest.” Internal Revenue Service, www.irs.gov/payments/interest. Accessed 12 May 2026.Internal Revenue Service. “Online Payment Agreement Application.” Internal Revenue Service, www.irs.gov/payments/online-payment-agreement-application. Accessed 12 May 2026.Internal Revenue Service. “Payments.” Internal Revenue Service, www.irs.gov/payments. Accessed 12 May 2026.Internal Revenue Service. “Penalty Relief.” Internal Revenue Service, www.irs.gov/payments/penalty-relief. Accessed 12 May 2026.Internal Revenue Service. “Penalties.” Internal Revenue Service, www.irs.gov/payments/penalties. Accessed 12 May 2026.Internal Revenue Service. “Quarterly Interest Rates.” Internal Revenue Service, 2 Apr. 2026, www.irs.gov/payments/quarterly-interest-rates.

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