How Much Are Tax Penalties? IRS Rates, Interest, and Relief

Federal tax penalties begin at 0.5% of your unpaid balance per month for paying late and 5% per month for filing late, both capped at 25% of the tax you owe. On top of those charges, the IRS adds daily-compounding interest that currently runs between 6% and 7% a year. How much are tax penalties in your specific case depends on what you did wrong, how long you waited, and how much you owe. If you’re due a refund, there is no penalty for filing late; these charges only apply when you owe money.

Filing Late: The 5% Monthly Penalty

Missing the deadline to submit your federal return is the most expensive timing mistake you can make. The IRS charges 5% of your unpaid tax for each month or partial month the return is late, up to a maximum of 25%.¹ The ceiling hits after just five months. A single day past the deadline counts as a full month, so there is no grace period.

The math moves fast. Owe $10,000 and file three months late, and the penalty alone is $1,500. At five months it caps out at $2,500, before interest. The penalty is calculated on the unpaid balance, so any amount you already paid through withholding or estimated payments reduces the base the 5% applies to.¹

One point that catches people off guard: if you’re owed a refund, there is no failure-to-file penalty at all. The penalty is based on unpaid tax, and when the balance is zero, the math zeroes out.² You still need to file within three years to claim that refund before it’s forfeited to the Treasury.

The Minimum Penalty After 60 Days

If your return is more than 60 days past due, a mandatory minimum kicks in that overrides the normal percentage. For returns due in 2026, the minimum is $525 or 100% of the unpaid tax, whichever is smaller.³ Owe $300 and file three months late, and the penalty is $300 rather than $525. Owe $2,000, and the $525 floor applies even if the standard percentage would produce a lower number.

Paying Late: The 0.5% Monthly Penalty

Owing tax and not paying by the deadline is penalized at a much lower rate than not filing. The IRS adds 0.5% of the unpaid balance for each month the payment is late, again capped at 25% total.¹ On a $10,000 balance, that is $50 per month. It would take 50 months of nonpayment to reach the 25% ceiling.

Set up an IRS installment agreement and file your return on time, and the monthly rate drops to 0.25%.¹ The reduced rate stays in effect for every month the agreement is active. The practical takeaway: file on time even if you can’t pay in full. Filing plus a payment plan cuts your exposure dramatically compared to doing nothing.

When You File Late and Pay Late

If both penalties apply in the same month, the IRS does not simply stack them. The 5% failure-to-file penalty is reduced by the 0.5% failure-to-pay amount during any overlapping month, so the combined charge is 5% rather than 5.5%.⁴

On a $10,000 balance, one month of being both unfiled and unpaid costs $500 (4.5% file penalty plus 0.5% pay penalty). The 25% cap applies to each penalty separately, so the theoretical maximum for both is 50% of your unpaid tax, and by the time you’re anywhere near that number, interest has been compounding the whole time.

What an Extension Actually Does

Filing Form 4868 gives you an automatic six-month extension to submit your individual return, pushing the deadline from April 15 to October 15. It does not extend your time to pay. You still owe any tax by the original April deadline, and failure-to-pay penalties and interest start running if you don’t settle up by then.⁵

A valid extension does protect you from the failure-to-file penalty, but only if you paid at least 90% of your total tax liability by April 15 and pay the rest when you file.⁵ Fall short of that threshold and you can end up facing both penalties calculated from the original due date.

Underpaying Estimated Tax

If you’re self-employed, have significant investment income, or otherwise don’t have enough withheld from paychecks, you owe quarterly estimated payments. Missing or underpaying them triggers a separate penalty calculated at the IRS underpayment interest rate applied to the shortfall for the period it was late.⁶

You can avoid the penalty entirely by meeting one of two safe harbors:

Pay at least 90% of the tax shown on your current year’s return through withholding and estimated payments.
Pay at least 100% of the tax shown on your previous year’s return.

The prior-year safe harbor has a catch for higher earners. If your adjusted gross income exceeded $150,000 the previous year ($75,000 if married filing separately), you need to pay 110% of the prior year’s tax, not 100%.⁶ Quarterly due dates are April 15, June 15, September 15, and January 15 of the following year.

Accuracy and Fraud Penalties

The charges above all involve timing. A separate category targets the accuracy of what you report, and the numbers are substantially larger.

The IRS imposes a 20% accuracy-related penalty on any underpayment caused by negligence, disregard of tax rules, or a substantial understatement of income tax.⁷ An understatement is “substantial” when it exceeds the greater of $5,000 or 10% of the tax that should have been shown. If your correct tax was $40,000 and you reported $30,000, the $10,000 shortfall clears both thresholds, and the penalty runs $2,000.

Fraud is another matter entirely. If any part of an underpayment is attributable to fraud, the IRS can impose a penalty equal to 75% of the fraudulent portion.⁸ On a $50,000 fraudulent underpayment, that is $37,500 in penalties alone, before interest and any criminal exposure.

Interest on Top of Everything

Interest runs on top of every penalty above, and unlike penalties it has no cap. The IRS sets the rate quarterly, based on the federal short-term rate plus three percentage points.⁹ For the first quarter of 2026, the individual underpayment rate is 7%.¹⁰ For the second quarter, it drops to 6%.¹¹

Interest compounds daily, and it accrues not just on your original unpaid tax but also on penalties already assessed. A $10,000 tax debt at 7% annual interest adds roughly $1.92 a day, and that baseline grows as penalties fold in. Because the rate can change every quarter, the effective cost of carrying a tax debt shifts in ways that are hard to predict. The only reliable way to stop the meter is to pay the balance in full.

Partnerships and S Corporations

Business entities face a different penalty structure. For partnerships (Form 1065) and S corporations (Form 1120-S), the IRS charges a flat dollar amount per owner per month the return is late, for up to 12 months. For returns due in 2026, the rate is $255 per partner or shareholder per month.³

The numbers stack quickly. A five-member partnership that files six months late owes $7,650. A 20-shareholder S-corp that runs 12 months late faces $61,200. These penalties apply even if the entity owes no tax itself, because the penalty is triggered by the late information return, not by an unpaid balance. That surprises many small business owners who assume a pass-through with no tax due carries no real consequence for filing late.

State Penalties Are Separate

Everything above is federal. Most states with an income tax impose their own late-filing and late-payment penalties, and the rates vary widely. Monthly failure-to-file charges typically range from about 1% to 5% per month, with caps that can reach 25% or higher. State interest rates on unpaid balances generally run between 3% and 18% annually. A handful of states charge flat-dollar penalties even when no tax is owed. Check your state’s revenue department for the specific rates.

Getting Penalties Reduced

Not every penalty is set in stone. The IRS offers several paths to reduce or remove penalties after they’ve been assessed, and this is where most people leave money on the table.

First-Time Abatement

The simplest route is the First-Time Abate program, an administrative waiver for taxpayers with a clean recent history. You qualify if you filed the same type of return for the three tax years before the penalty year and had no penalties during that period (or had them removed for acceptable reasons other than First-Time Abate). You can request it by calling the IRS directly; you don’t need to submit paperwork or even mention the program by name. If you’d rather not call, you can send a written statement or file Form 843.¹²

Reasonable Cause

If you don’t qualify for First-Time Abate, you can request relief by showing reasonable cause. That means proving you exercised ordinary care in trying to meet your obligations but couldn’t because of circumstances beyond your control. The IRS recognizes several situations as potential reasonable cause:

Serious illness or death affecting you or an immediate family member.
Natural disaster or fire that destroyed records or made compliance impossible.
Inability to obtain records for reasons outside your control.
Reliance on incorrect advice from the IRS itself or a tax professional, when that reliance was reasonable.

Simply forgetting or being too busy does not qualify.¹³ The IRS evaluates these requests case by case, and documentation matters. A taxpayer with hospital records or a FEMA disaster declaration has a much stronger case than one who writes a vague letter about being overwhelmed.

Interest generally cannot be abated even when penalties are waived. The IRS can remove interest that resulted from its own errors or delays, but interest on the underlying tax debt continues to run regardless of penalty relief.

1
Office of the Law Revision Counsel. 26 USC 6651 – Failure to File Tax Return or to Pay Tax
2
Internal Revenue Service. If Taxpayers Missed the Deadline to File a Federal Tax Return the IRS Can Help
3
Internal Revenue Service. Failure to File Penalty
4
Internal Revenue Service. Failure to Pay Penalty
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Internal Revenue Service. Application for Automatic Extension of Time to File US Individual Income Tax Return
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Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual to Pay Estimated Income Tax
7
Office of the Law Revision Counsel. 26 US Code 6662 – Imposition of Accuracy-Related Penalty on Underpayments
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Office of the Law Revision Counsel. 26 US Code 6663 – Imposition of Fraud Penalty
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Office of the Law Revision Counsel. 26 USC 6621 – Determination of Rate of Interest
10
Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026
11
Internal Revenue Service. Internal Revenue Bulletin 2026-08
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Internal Revenue Service. Administrative Penalty Relief
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Internal Revenue Service. IRM Part 20 Penalty and Interest – 20.1.1 Introduction and Penalty Relief