What is the Failure to Pay Penalty? Penalties Not Paying Tax?

The failure to pay penalty is one of the most common tax penalties out of the 140+ penalties that the IRS imposes. This penalty is charged to individuals that have not paid their taxes or have underpaid their taxes. The IRS charges this penalty in order to discourage people from not paying the IRS and for the purpose of making them work with the IRS if they can't pay in full (they will cut penalty in half with an installment agreement).

How The Failure to Pay Penalty is Calculated

The failure to pay penalty starts being charged the day after taxes are due, which is April 16th. Even if you have filed for an extension, tax payments are still due by April 15th.

• Standard Failure To Pay Penalty: The Standard failure to pay penalty is .5% monthly penalty on the balance of taxes that is outstanding. The maximum amount this penalty can be is 25%. If you have also paid the maximum amount for the failure to file penalty then the maximum failure to pay penalty will be 22.5%.


• Failure to Pay Penalty When entered into an Installment Agreement: The IRS gives a break to those individuals that enter into an installment agreement with the IRS. When an installment agreement is entered you are making a commitment to pay back the IRS in monthly increments. The IRS likes when individuals are open about their financial problems and are willing to work with them in order to pay back their taxes. The failure to pay penalty for individuals that have entered into an installment agreement is .25% a month. The maximum cumulative penalty for this is 25%.


• Failure to Pay Penalty When Notice of Intent to Levy has been issued: The IRS will issue an Intent to Levy if they believe the taxpayer is not cooperating. Ten days after the IRS issues an intent to levy and the tax liability remains unpaid, the failure to pay penalty will jump from .5% to 1% a month on the unpaid tax balance.

Reducing or Removing the Failure to Pay Penalty

The IRS imposes penalties in order to scare/punish people that do not follow the laws. The IRS does realize that there are situations in which people cannot remain in full compliance with IRS rules and they do not intend to punish these people. The IRS automatically charges penalties but they can be removed if a "reasonable cause" is given to the IRS for not complying with tax laws. So if you have a legitimate excuse for not paying your taxes on time, the IRS will allow you to remove those penalties. The name for this is penalty abatement. The IRS considers each individual on a case by case basis and is not known for being overly strict about removing penalties. In fact, the IRS removes about 30% of all penalties that it issues.

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