United States / Guides / IRS late-filing and late-payment penalties, decoded
United States · guideIRS late-filing and late-payment penalties, decoded
The short answer
The IRS charges two distinct penalties under IRC section 6651: failure-to-file, at 5% of the unpaid tax per month or partial month the return is late, capped at 25%; and failure-to-pay, at 0.5% per month, also capped at 25%. When both run in the same month, the failure-to-file rate is reduced to 4.5% so the combined charge stays at 5% a month, not 5.5%. A return filed more than 60 days after its due date carries a separate flat-dollar minimum penalty regardless of how small the percentage calculation comes out to, and interest accrues on top of both penalties with no cap of its own.
Key facts — verified dates on each
Two penalties, for two different failures
Section 6651(a)(1) penalizes not filing a return by its due date, counting any extensions actually granted. Section 6651(a)(2) penalizes not paying the tax shown as due by that same date, independent of whether the return itself was filed on time. They are assessed under the same code section but measured against different failures, and the code deliberately makes the filing penalty ten times steeper per month than the payment penalty.
That asymmetry is the mechanism, not an accident: a taxpayer who cannot pay in full is still better off filing the return on time and paying what they can, because the failure-to-file penalty is the expensive one. Filing late and paying late compounds both penalties on the same unpaid balance; filing on time and paying late triggers only the smaller of the two.
The monthly math
Both penalties are calculated as a percentage of the unpaid tax for each month, or part of a month, the failure continues — a return filed one day into a new month is charged for the full month, not a prorated fraction of it.
When a return is both late and unpaid, the two penalties run in the same month, and the code prevents them from simply stacking to 5.5%. Instead, the failure-to-file rate for that month is reduced by the failure-to-pay rate applied in the same month, so the combined charge stays at 5% total per month.
- Failure-to-file alone: 5% of unpaid tax per month or part of a month, capped at 25%
- Failure-to-pay alone: 0.5% of unpaid tax per month or part of a month, capped at 25%
- Both in the same month: 4.5% failure-to-file + 0.5% failure-to-pay = 5% combined, not 5.5%
- Failure-to-pay drops to 0.25% per month while an IRS-approved installment agreement is in effect, for a taxpayer who filed on time
- Failure-to-pay rises to 1% per month starting 10 days after the IRS issues a notice of intent to levy
What happens after the failure-to-file penalty maxes out
The failure-to-file penalty stops accruing once it reaches its 25% cap, which happens after five months of an unfiled return — five months at the reduced 4.5% rate account for 22.5%, plus the 0.5% failure-to-pay share for those same months, totals 25%.
The failure-to-pay penalty is capped separately and keeps running on its own after the failure-to-file penalty has maxed out, continuing at 0.5% a month until it reaches its own 25% ceiling. In practice this means a return that stays unfiled and unpaid for a very long time sees the filing penalty stop growing well before the payment penalty does — the two caps are independent of each other, not a single combined ceiling.
The 60-day minimum penalty
A separate rule inside section 6651(a) sets a floor under the failure-to-file penalty once a return is more than 60 days late, counting from the due date with any extensions. Instead of the ordinary percentage calculation, the penalty cannot be less than the smaller of a fixed dollar amount or 100% of the tax required to be shown on the return.
That fixed dollar amount is inflation-adjusted every year and published in advance by IRS revenue procedure. For returns required to be filed in calendar year 2026, the minimum is $525 or 100% of the tax due, whichever is smaller — meaning a return with little or no tax owed still faces the full tax amount as its penalty, while a return with a larger balance is protected from a minimum penalty exceeding what the percentage-based 5%-a-month calculation would already produce over time.
This minimum applies only to the failure-to-file penalty, and only past the 60-day mark. A return 45 days late is still governed by the ordinary percentage math above; the flat minimum has no bearing on it.
Interest runs on top, uncapped, on a schedule of its own
The 25% caps above bound each penalty, not the interest that accrues separately on the underlying unpaid tax and on penalties once they are assessed. Interest has no ceiling and keeps compounding daily until the balance is paid in full, regardless of whether the failure-to-file or failure-to-pay penalty has already maxed out.
The underpayment rate for individuals is set quarterly at the federal short-term rate plus three percentage points; it was 7% for the third quarter of 2026 (July through September). The rate for any given quarter is announced by the IRS roughly a month ahead of that quarter and can move up or down as short-term rates change, so a rate that applied to an earlier quarter of the same balance is not necessarily the rate applying to a later quarter of the same unpaid amount.
Where this becomes a CPA conversation
The mechanics above show how a penalty and interest figure is built — the rates, the caps, the minimum, and how they interact over time. Turning that into an actual dollar total for a specific account, and evaluating whether reasonable-cause relief or first-time penalty abatement applies to a given situation, is an account-specific determination the IRS makes case by case from the taxpayer's transcript and filing history.
CapEasy does not calculate a client's exact penalty exposure or file abatement requests on this page; a CPA reviewing the account transcript is who does that work, and who is positioned to tell a taxpayer whether their specific facts support relief.
The figures, and when we checked them
These numbers change by year or by notification. Each one shows the date we last verified it against the source — if that date looks old, check the source before relying on it.
Questions on this
What is the difference between the failure-to-file and failure-to-pay penalties?
Failure-to-file penalizes not submitting the return by its due date, at 5% of the unpaid tax per month, capped at 25%. Failure-to-pay penalizes not paying the tax shown as due, at 0.5% per month, also capped at 25%. They can apply separately or together depending on whether the return was late, the tax was unpaid, or both.
How much is the failure-to-file penalty?
5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax — reached after five months of an unfiled return.
How much is the failure-to-pay penalty?
0.5% of the unpaid tax for each month or part of a month it remains unpaid, up to a maximum of 25%. The rate drops to 0.25% a month under an approved installment agreement and rises to 1% a month starting 10 days after a final notice of intent to levy.
What happens when a return is both late and unpaid in the same month?
The failure-to-file penalty for that month is reduced by the amount of the failure-to-pay penalty assessed for the same month, so the combined rate is 5% a month — 4.5% failure-to-file plus 0.5% failure-to-pay — rather than the two rates simply adding to 5.5%.
Is there a minimum penalty if I file very late?
Yes. Once a return is more than 60 days past its due date (counting extensions), the failure-to-file penalty cannot be less than the smaller of an inflation-adjusted flat dollar amount or 100% of the tax required to be shown on the return. For returns required to be filed in 2026, that flat amount is $525.
Do these penalties keep growing forever?
No. Each penalty has its own 25% cap. The failure-to-file penalty stops accruing after about five months; the failure-to-pay penalty is capped separately and can keep running on its own, at 0.5% a month, until it reaches its own 25% ceiling.
Does interest stop once a penalty hits its cap?
No. Interest accrues separately on the unpaid tax and on assessed penalties, has no percentage cap, and compounds daily until the full balance is paid — independent of whether either penalty has already maxed out.
I filed on time but could not pay in full. Which penalty applies?
Only the failure-to-pay penalty, at 0.5% a month on the unpaid balance (0.25% if an installment agreement is approved) — the failure-to-file penalty does not apply because the return itself was filed by its due date.
Does a filing extension also extend the time to pay?
No. An extension such as Form 4868 extends the deadline to file the return, not the deadline to pay. Tax is still due by the original due date, and the failure-to-pay penalty and interest begin accruing from that date regardless of an approved filing extension.
Can the IRS waive these penalties?
The IRS has administrative relief paths, including reasonable-cause abatement and first-time penalty abatement, but eligibility is evaluated case by case against the taxpayer's specific facts and filing history. That determination is made from the account transcript by the taxpayer or their CPA, not calculated from the general mechanics described here.
Primary sources
- IRS — Failure to File Penalty
- IRS — Failure to Pay Penalty
- 26 U.S.C. § 6651 — Failure to file tax return or to pay tax (Cornell Law)
- IRS — Rev. Proc. 2024-40 (2026 inflation-adjusted items, including the § 6651(a) minimum penalty)
- IRS — Quarterly interest rates
Last reviewed 2026-08-14. Statutes and schedules change — the sources above are authoritative, this page is orientation.
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