The IRS failure to pay penalty is assessed by the IRS whenever you don’t pay your taxes on time. The basic penalty rate is 0.5% of the amount of your unpaid taxes per month.
The IRS can also charge the failure to file penalty and interest if you don’t file a return or pay your taxes. This penalty will increase the amount you owe each month until you work out a resolution with the IRS.
The IRS charges the failure to pay penalty in either of the following scenarios:
The IRS will still charge the failure to pay penalty if you request an automatic six-month filing extension. Getting a filing extension allows you to avoid the failure to file penalty, but not the failure to pay penalty.
The IRS assesses a 0.5% penalty each month. If your payment is one day late, the IRS charges the whole penalty for that month.
The maximum failure to pay penalty amount is 25%. If the IRS is charging you both the failure to file and failure to pay penalty in a given month, then the combined amount is 5% per month.
The IRS charges a reduced failure to pay penalty to some taxpayers who have entered into installment agreements. If you filed your return on time and are an individual taxpayer, a failure to pay penalty of only 0.25% will be charged once your IRS installment agreement has been approved.
The failure to pay penalty rate can also increase when a taxpayer fails to send payment within ten days after receiving a Notice of Intent to Levy. In these cases, the penalty rate becomes 1% per month.
The failure to file penalty is 5% per month or 10 times the amount of the failure to pay penalty. When the IRS assesses both penalties simultaneously, the failure to file penalty is reduced to 4.5%.
Because the failure to file penalty is much higher, you’ll reduce your overall tax penalties by filing your return on time, even if you can’t pay your full tax bill. You can then negotiate a payment plan or use another tax resolution option.
The failure to pay penalty applies once your return is due, which is typically around April 15th. The underpayment penalty applies when you fail to pay enough in taxes throughout the year.
Employees can adjust their withholding using Form W-4, while self-employed taxpayers can modify their estimated tax payments to avoid underpayment penalties. As long as you meet one of the IRS safe harbor amounts, the IRS won’t charge any underpayment penalties.
You’ll also be charged interest each month on your unpaid taxes. The IRS interest rates are determined each quarter by taking the federal short-term rate and adding 3%.
The IRS set interest rates at 6% for the first two quarters of 2019. While penalties can sometimes be abated, interest is generally only removed if the IRS has made some kind of error.
Pay as much as possible by your tax return due date. Even if you can’t pay the full amount, this will reduce the unpaid balance and the amount of penalties you’ll face.
File your return on time. Filing on time avoids the failure to file penalty and makes you eligible for the reduced failure to pay penalty if you enter into an installment agreement.
You should also double-check your withholding amounts or estimated tax payments. Doing so may allow you to avoid a big tax bill when you file your return.
The IRS offers several types of penalty abatement, including:
You should determine if you may qualify for any of these penalty relief programs and submit a penalty abatement request. Abatement could save you a significant amount of money if the IRS has charged a lot of tax penalties.
The IRS offers several types of payment plans with flexible terms. However, if you can’t afford to make monthly payments, you may want to consider other tax resolution options.
An Offer in Compromise allows you to settle your unpaid taxes for less than you owe. There are strict requirements qualify, but eligible taxpayers may be able to settle their taxes owed for pennies on the dollar.
You may also be able to request innocent spouse relief if your taxes owed comes from a joint tax return. Finally, you can ask the IRS to classify your account as currently not collectible due to financial hardship. Currently not collectible will allow you to avoid bank account levies or wage garnishments temporarily.
Contact a tax professional to discuss penalty relief and other IRS tax resolution programs.
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.