How Much Is the IRS Penalty? Rates, Interest, and Abatement

IRS penalty rates run from 0.5% per month for paying your tax bill late all the way up to 75% of an underpayment caused by fraud. The rate that applies to you depends on what went wrong: missing the filing deadline, paying late, underreporting income, skipping estimated payments, or filing bad information returns. Interest accrues on top of every penalty, and the IRS will often remove a first-time slip if you ask.

Filing Late Is the Most Expensive Mistake

The failure-to-file penalty is 5% of your unpaid tax for each month or part of a month the return is late, capped at 25% of the balance. It maxes out after five months.¹

If your return is more than 60 days late, a minimum penalty applies regardless of how small your balance is. For returns due after December 31, 2025, that minimum is $525 or 100% of the unpaid tax, whichever is smaller.² The minimum was $485 for returns due in 2024 and adjusts each year for inflation.

When you file late and pay late in the same month, the IRS reduces the filing penalty by the payment penalty amount, so the 5% effectively drops to 4.5% for the overlapping month.¹ You aren’t charged twice for the same period, but the combined monthly hit is still 5%.

Paying Late Costs Much Less

If you file on time but can’t pay the full balance, the penalty is only 0.5% of the unpaid tax per month, also capped at 25%. Reaching that cap takes more than four years, compared to five months on the filing side. That is why tax professionals say to file even if you can’t pay: the math strongly favors it.¹

The rate shifts based on how you handle the debt. Set up a formal installment agreement, and the monthly rate drops to 0.25%. Ignore a notice of intent to levy for more than 10 days, and it jumps to 1% per month.³

Accuracy, Valuation, and Fraud

Errors that lead to an underpayment carry a flat 20% penalty on the shortfall when the cause is negligence or a substantial understatement of tax.⁴

For individuals, an understatement is “substantial” when it exceeds the greater of 10% of the tax that should have been on the return or $5,000. Corporations use a different test: the understatement must exceed the lesser of 10% of the correct tax (or $10,000, whichever is more) and $10 million.⁴

The same 20% rate applies to substantial valuation misstatements, such as claiming a charitable donation is worth at least 150% of its real value. If the misstatement is grossly overstated at 200% or more of the correct value, the penalty doubles to 40%.⁴

Where the IRS can prove fraud by clear and convincing evidence, the penalty jumps to 75% of the portion of the underpayment attributable to fraud, with no cap. The 75% fraud penalty replaces the 20% accuracy penalty on the same underpayment.⁵

Skipping Estimated Tax Payments

Self-employed people, investors, and anyone else without enough withholding are expected to make quarterly estimated payments. Fall short, and the IRS charges an interest-style penalty on the underpayment for each quarter, calculated at the rate set under Section 6621 (the federal short-term rate plus three percentage points, updated quarterly).⁶

You avoid the penalty entirely by hitting one of the safe harbors: pay at least 90% of the current year’s tax through withholding and estimates, or pay 100% of last year’s total tax liability. If your prior-year adjusted gross income was over $150,000 ($75,000 if married filing separately), that second safe harbor rises to 110%.⁶

Two more exceptions: no penalty if the total tax on your return minus withholding is less than $1,000, and no penalty if you had zero tax liability for all of the prior year and were a U.S. citizen or resident for that full year.⁷ Taxpayers with seasonal or uneven income can also use the annualized income installment method to reduce the required payment in earlier quarters.

Information Return Penalties for Businesses

If you’re a business filing W-2s, 1099s, or similar information returns, the per-return penalty depends on how late you fix the problem. For returns due in 2026:⁸

Up to 30 days late: $60 per return
31 days late through August 1: $130 per return
After August 1 or never filed: $340 per return
Intentional disregard: $680 per return with no maximum cap

Annual maximums apply at each tier other than intentional disregard, and small businesses with average annual gross receipts of $5 million or less get lower caps. A de minimis safe harbor also lets you avoid penalties if you fail on 10 or fewer returns and correct them by August 1.⁸

Bounced Payments

A check that bounces or an electronic payment that fails triggers its own penalty: 2% of the payment on amounts of $1,250 or more, a flat $25 on payments between $25 and $1,249, and the payment amount itself on anything under $25.⁹ This stacks on top of any failure-to-pay charges, which keep running because the IRS never actually received the money.

Interest on Top of Everything

Interest runs on every unpaid balance from the original due date until you pay in full, and it also accrues on the penalties themselves.¹⁰

The underpayment interest rate for individuals is the federal short-term rate plus three percentage points, adjusted each quarter.¹¹ The rate was 7% for the first quarter of 2026¹² and dropped to 6% for April through June 2026.¹³ There is no cap on interest. It runs until the balance is zero.

How to Get Penalties Removed

Penalties are more negotiable than most people think, and the IRS removes them frequently. You have to ask.

First-Time Abatement

The simplest route is the administrative first-time abatement waiver. You qualify if you filed the same type of return for the three prior tax years, had no penalties during those three years (or had them removed for an acceptable reason), and are current on all required returns.¹⁴ You can request it even before paying the tax, though the failure-to-pay penalty keeps accruing until the balance clears. Ask by phone, by letter, or on Form 843.

Reasonable Cause

If you don’t qualify for first-time abatement, you can ask for relief based on reasonable cause. The IRS looks at whether you used ordinary business care and prudence but still couldn’t comply. Circumstances that commonly support relief include natural disasters, serious illness or death in the immediate family, inability to obtain records, and system failures that blocked timely electronic filing.¹⁵

Some things generally don’t work: not knowing about a filing requirement, a simple oversight, or insufficient funds by themselves. Relying on a tax preparer who erred also won’t automatically clear the penalty, since the IRS considers you ultimately responsible for your return. If you gave complete and accurate information to a competent advisor who then dropped the ball, the IRS will weigh that in context.¹⁵ The strongest requests pair a real obstacle with documented steps you took to comply despite it.

1
Office of the Law Revision Counsel. 26 USC 6651 – Failure to File Tax Return or to Pay Tax
2
Internal Revenue Service. Failure to File Penalty
3
Internal Revenue Service. Internal Revenue Manual 20.1.2 – Failure To File/Failure To Pay Penalties
4
Office of the Law Revision Counsel. 26 US Code 6662 – Imposition of Accuracy-Related Penalty on Underpayments
5
Office of the Law Revision Counsel. 26 USC 6663 – Imposition of Fraud Penalty
6
Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual to Pay Estimated Income Tax
7
Internal Revenue Service. Instructions for Form 2210 (2025)
8
Internal Revenue Service. Information Return Penalties
9
Internal Revenue Service. Topic No. 206, Dishonored Payments
10
Office of the Law Revision Counsel. 26 USC 6601 – Interest on Underpayment, Nonpayment, or Extensions of Time for Payment, of Tax
11
Office of the Law Revision Counsel. 26 US Code 6621 – Determination of Rate of Interest
12
Internal Revenue Service. Quarterly Interest Rates
13
Internal Revenue Service. Internal Revenue Bulletin: 2026-8
14
Internal Revenue Service. Administrative Penalty Relief
15
Internal Revenue Service. Penalty Relief for Reasonable Cause