- Failure-to-file penalty is triggered by missing the tax return due date and equals 5% of unpaid tax per month up to 25%, with a minimum amount if over 60 days late.
- Failure-to-pay penalty applies when tax shown on a timely return remains unpaid and equals 0.5% per month up to 25%, reduced to 0.25% with an approved payment plan.
- When both penalties apply in the same month, the failure-to-file rate is reduced by the failure-to-pay portion so the combined rate does not exceed 5%.
For background on this issue, read our Penalty relief guide.
Failure-to-File Penalty Basics
According to the IRS, the failure-to-file penalty applies when a taxpayer does not submit their tax return by the due date, including any approved extensions. This penalty covers individual returns such as Form 1040, corporate returns such as Form 1120, partnership returns such as Form 1065, and S corporation returns such as Form 1120-S.
The standard rate for individuals and most businesses is 5 percent of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25 percent. If the return is more than 60 days late, a minimum penalty applies; the amount varies by the return due date, currently $525 after December 31, 2025.
For partnerships and S corporations the penalty is calculated differently, using a per-partner or per-shareholder base amount multiplied by the number of partners or shareholders and the number of months late, up to 12 months. Reasonable cause can prevent the penalty from being charged.
Readers should consult the specific IRS page on failure-to-file penalty and the instructions for the relevant tax form to confirm rates and conditions that apply to their filing type.
Failure-to-Pay Penalty Basics
The IRS states that the failure-to-pay penalty is triggered when the tax shown on a return is not paid by the due date. It is calculated on the unpaid tax after subtracting timely payments, withholding, estimated payments, and allowable refundable credits.
The rate is generally 0.5 percent of the unpaid tax for each month or part of a month the balance remains unpaid, up to a maximum of 25 percent. If the taxpayer has filed on time and obtained an approved payment plan, the rate drops to 0.25 percent per month during the plan period. A higher 1 percent rate can apply after certain levy notices.
The same 0.5 percent rate and 25 percent maximum apply to additional tax the IRS determines was not reported on the original return once a notice and demand for payment is issued.
Official IRS guidance on the failure-to-pay penalty and the related Treasury Regulation should be reviewed to understand how the penalty is computed in specific circumstances.
How the Two Penalties Interact
When both the failure-to-file and failure-to-pay penalties apply for the same month, the IRS reduces the failure-to-file penalty by the amount of the failure-to-pay penalty charged that month. This means the combined monthly rate stays at 5 percent rather than reaching 5.5 percent.
After five months the failure-to-file penalty reaches its 25 percent maximum and stops accruing, but the failure-to-pay penalty can continue to accrue up to its own 25 percent limit. Interest is charged on both penalties, and the start date for interest can differ by penalty type.
Republic Tax Relief provides private tax-resolution services for individuals and businesses facing IRS or state tax issues. Readers with existing tax-debt questions who want to explore options for addressing penalties and balances may contact the firm for a free, no-obligation initial consultation to discuss suitability, scope, fees, and availability of help communicating with the IRS.
Avoiding or Reducing Penalties
The IRS notes that both penalties can be avoided by filing and paying on time. An extension of time to file does not extend the time to pay. A payment plan can reduce the failure-to-pay rate and stop further accrual once set up.
Reasonable cause may allow the IRS to remove or reduce a penalty if the taxpayer acted in good faith. Interest cannot be removed unless the associated penalty is also removed. Taxpayers may dispute a penalty by responding to the notice they receive or by calling the number listed on it.
To understand the exact rules that apply to a specific return, consult the IRS Failure to File Penalty page, the Failure to Pay Penalty page, and the instructions for the form in question.
IRS guidance checked .
General information only, not individual tax, legal, or financial advice. Rules, deadlines, and eligibility depend on your circumstances. Check current official guidance or consult a qualified professional.
Request a correction →
