IRS Penalties for Late Filing and Payment of Federal Taxes

It can be a sinking feeling to finish preparing your tax return only to realize that you owe the IRS money. Worse, you may lack the funds to pay right away. The Internal Revenue Service charges penalties and interest for late payments, but it also imposes penalties for late filings. It makes sense to at least get your tax return in on time because you can avoid compounding the penalties. 

The Penalty for Late Payment

The late payment penalty applies to any portion of your federal tax that remains unpaid as of the due date, typically the tax filing date. The IRS imposes a failure-to-pay penalty of one half of one percent for each month or part of a month that the tax goes unpaid. If there is any silver lining, it is that the penalty cannot exceed 25 percent of the total tax due. The IRS might waive the penalty if you can show there is a reasonable and justifiable reason for the late payment.

The Penalty for Late Filing

The penalty for filing late is steeper. As with the failure-to-pay penalty, it applies to any portion of your tax that remains unpaid as of the filing date, usually April 15 each year unless that date falls on a weekend or holiday. The penalty is 5 percent for each month or part of a month that your tax return is late with a maximum penalty of 25 percent. The clock starts at your tax deadline and accrues until you file your return.

​The longer you wait, the worse it gets. If you fail to file within 60 days of the due date or extended due date, you will pay at least $135 or a penalty equal to 100 percent of the tax you owe, whichever is less. The IRS can waive this penalty, if you show that your return was filed late for reasonable cause such as illness or some other unforeseen calamity.

Interest Charges

Interest is typically added to any unpaid tax from the time the payment was due until the date the tax is paid. Interest rates are set by the IRS every three months at the federal short-term rate plus 3 percent. Interest is calculated for each day your balance is not paid in full, assessed on the unpaid amount of tax due as well as any late filing or late payment penalties. In other words, you have to pay both. 

File for an Extension

​File a request for an extension of time to file immediately if you know you are going to be late finishing your tax return. You might also file an extension even if you have completed your return, but it looks like you owe taxes.

This pushes your filing deadline back to October and helps you avoid the more serious late filing penalty. Now, you have time to take your return to a tax professional to make absolutely sure you are not missing a deduction, credit, or other detail that could reduce what you owe.

​You might even dodge the late payment penalty if you pay at least 90 percent of what you think you owe and ​you file the extension before the April 15 due date. You must also pay the entire balance before the extended October due date. This won’t erase an interest you owe on the late amount after April 15, but at least you will avoid the .005 percent late payment penalty, and you will not owe the late filing penalty.