Failure to Pay Penalty & Other Penalties for Not Paying Taxes

failure to pay tax penalty

The failure-to-pay penalty is one of the most commonly charged penalties of all of the penalties that the IRS imposes. This penalty is charged to individuals who have not paid their taxes or have underpaid their taxes. The IRS charges this penalty to encourage people to work with the IRS if they can't pay their taxes in full (the IRS will cut the failure-to-pay penalty in half if an installment agreement is put into place).

How the Failure-to-Pay Penalty is Calculated

The failure-to-pay penalty starts being charged the day after tax filings are due. Even if you have filed for an extension, tax payments are still due by the April tax filing deadline.

  • Standard Failure-to-Pay Penalty: The standard failure-to-pay penalty is a .5% monthly accrual on the outstanding tax balance. This penalty can jump to 1% once the IRS sends you demand for payment or a notice of intent to levy. The maximum amount that this penalty can reach is 25%. If you have already reached the maximum amount of the failure to file penalty, then the maximum failure-to-pay penalty will be reduced to 22.5%.

  • Failure-to-Pay Penalty When Entered Into an Installment Agreement: The IRS gives a break to individuals who enter into an installment agreement with the IRS. By entering into an installment agreement, 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 who have entered into an installment agreement is only .25% a month. The maximum cumulative penalty for this is 25%.

  • Failure-to-Pay Penalty When a Notice of Intent to Levy Has Been Issued: The IRS will issue an intent to levy if they believe that a taxpayer is not cooperating. If a tax liability remains unpaid 10 days after the IRS has issued an intent to levy, the failure-to-pay penalty will jump from .5% to 1% per month on the unpaid tax balance.

Reducing or Removing the Failure-to-Pay Penalty

The IRS imposes penalties in an effort to scare and punish people who disobey tax laws. The IRS understands that certain situations make it difficult or even impossible for people to fully comply with IRS rules and regulations, and they do not intend to punish these people. The IRS automatically charges penalties, but those penalties can be removed if a "reasonable cause" is provided to the IRS properly explaining the reason for the in compliance.

If you have a legitimate excuse for not paying your taxes on time, you are most likely eligible for penalty abatement, whereby the IRS will remove those penalties. The IRS considers each individual on a case-by-case basis and is not known to be unnecessarily strict about removing penalties; in fact, the IRS removes approximately 30% of all penalties issued.

Tax Penalty Help & Related Topics

 

Penalty Abatement Guide
Have a legitimate reason for not paying taxes on time? Here is a guide to help you remove those penalties through penalty abatement.

Help Filing for Penalty Abatement
If you need help abating tax penalties, our tax team can help you remove IRS tax penalties owed through penalty abatement. See if you qualify to have IRS penalties removed.

Sample Abatement Letter
In order to abate your penalties it is required that you include a letter with your request that explains the details. Here is a sample of a letter that you can use pieces of when filing your request.

Penalty for Late Tax Payments
There are various penalties that the IRS charges for not paying taxes on time. These penalties depending upon different factors.

IRS Underpayment Penalty and Interest Rates
Understand how IRS interest rates are determined, which are applicable to you, and what you can do to lessen them.

Overview of Tax Penalties and Interest
General information on the most common tax penalties that the IRS charges with links to more details on each one.