Owing the IRS after the filing deadline can trigger two types of charges: penalties (fees for missing a deadline) and interest (an ongoing charge on unpaid tax, similar to a credit card balance).
At a glance
- The failure-to-file penalty is usually higher than the failure-to-pay penalty, so filing on time saves money even if you can’t pay in full.
- When both penalties apply in the same month, the IRS reduces the failure-to-file penalty slightly so both aren’t charged at full rates.
- Interest compounds daily and may change quarterly based on IRS rates.
- Filing your return stops the biggest penalty from growing. Paying what you can, or setting up a payment plan, limits additional charges.
Penalties vs. interest
| Feature | IRS tax penalties | IRS interest |
|---|---|---|
| What it is | Fee for failing to file and/or pay by the deadline | Cost of carrying an unpaid balance |
| When it starts | After a missed deadline | As long as a balance remains |
| How it grows | Usually monthly | Compounds daily |
| When it’s due | Failure to file: due on the return date (or extended date). Failure to pay: due on the date the IRS sends a notice or assesses the penalty | Due as it accrues, continues daily until paid |
Failure-to-file penalty
- Calculated on tax still owed after refundable credits and payments (e.g., Additional Child Tax Credit, EITC, withholding, estimated payments)
- Usually 5% of unpaid tax per month or part of a month the return is late
- Caps at about 25% of unpaid tax (maxes out after five months)
- If more than 60 days late, a minimum penalty may apply: for tax year 2025 filings, generally $525 or 100% of unpaid tax, whichever is less
- Even a few days late counts as a full month
- Filing the return (even without paying) stops this penalty from growing
Failure-to-pay penalty
- Applies when a return is filed but the full tax bill isn’t paid by the deadline (typically April 15)
- Standard rate: about 0.5% of unpaid tax per month or part of a month
- Also caps at 25% of unpaid tax
- Drops to 0.25% per month if filed on time with an approved IRS payment plan active
- Increases to 1% per month if not paid within 10 days of an IRS late-payment notice
- Full monthly charge applies even if paid in full before the month ends
When both penalties apply in the same month
The IRS typically reduces the failure-to-file penalty by the failure-to-pay penalty amount in overlapping months — about 4.5% for failure to file and 0.5% for failure to pay, instead of 5% and 0.5% separately. The failure-to-file penalty maxes out within five months; failure-to-pay continues until the balance is paid in full.
| IRS term | Typical monthly rate | Rate changes | Maximum | What stops it |
|---|---|---|---|---|
| Failure to file | 5% of unpaid tax/month | Reduced to 4.5%/month when combined with failure-to-pay in the same month | 25% of unpaid tax (plus minimum penalty if over 60 days late) | Filing the return |
| Failure to pay | 0.5% of unpaid tax/month | Up to 1%/month after 10 days past an IRS notice; may drop to 0.25% with an approved payment plan | 25% of unpaid tax | Paying the balance in full |
Underpayment penalty for estimated taxes
Self-employed individuals, or those with side or investment income, may owe an underpayment penalty if they don’t make sufficient quarterly estimated payments — even if the full balance is paid when filing. This is generally evaluated using Form 2210.
Penalty relief
First-time penalty relief
The First-Time Abate program applies to taxpayers with a history of good compliance (generally the past three years) or who weren’t previously required to file. If eligible, the IRS may remove failure-to-file and failure-to-pay penalties for one tax period. This is generally a one-time consideration.
Reasonable cause relief
If not eligible for first-time relief, penalty relief may still be available based on reasonable cause — a valid reason for missing a deadline despite a good-faith effort to comply. Common qualifying reasons:
- Serious illness or hospitalization
- Natural disasters or other unexpected events
- Death or serious illness of an immediate family member
- Records destroyed or unavailable due to circumstances beyond control
- System issues that delayed timely e-filing or payment
Requests are reviewed case-by-case; clear documentation matters.
What penalty relief does and doesn’t do
- Can remove penalties, which may reduce interest tied to those penalties
- Does not remove interest on the underlying tax balance
- Applies only to specific situations
To request relief: submit a signed, written statement mailed to the service center where the current-year return would be filed, or to the address on the IRS notice if responding to one.
IRS interest
Interest starts on the return due date of the amount owed, and is not fixed — it changes quarterly. Recent underpayment rates for individuals ranged from 6% to 7% in early 2026.
Ways to minimize interest
- Pay the balance as soon as possible — interest stops once the balance hits zero.
- Set up a payment plan — interest still applies to the remaining balance, but a plan can help avoid larger penalties.
- Reduce the underlying balance — lowering the tax bill or penalties (e.g., via an amended return or penalty relief) reduces related interest.
- Dispute interest in limited situations — available only if interest was caused by an unreasonable IRS error or delay, via Form 843, Claim for Refund and Request for Abatement. Not available for general hardship or reasonable cause.
Common myths
Myth: An extension gives more time to pay. False. Filing Form 4868 gives more time to file; payment is still due by the original deadline.
Myth: Ignoring IRS notices makes the problem smaller. False. Penalties and interest keep growing until the balance is paid or relief is requested.
Myth: Partial payments don’t help. False. Any payment reduces the balance, lowering both interest and future penalties.
Steps to take if you missed a deadline
- Gather documents.
- File the return as soon as possible.
- Pay what you can now.
- Set up a payment plan if needed.
- Read all IRS notices.
- Document the situation if requesting relief.
FAQs
How much interest does the IRS charge? Rates are set quarterly, typically in the mid-single digits annually, and compound daily.
What is the penalty for not filing? Generally 5% of unpaid tax per month, up to 25%; a minimum penalty may apply if more than 60 days late. No penalty applies if a refund is owed.
What triggers an underpayment penalty? Not paying enough tax throughout the year via withholding or estimated payments — common for the self-employed, freelancers, or those with significant investment income.
Can the IRS waive penalties? Yes, through first-time relief or reasonable cause relief. Interest is rarely waived, usually only for an IRS error or delay.
Can you go to jail for not paying taxes? In most cases, no — the IRS focuses on penalties, interest, and payment plans. Criminal penalties are generally reserved for fraud or intentional evasion.
Should you file if you can’t pay? Yes. The failure-to-file penalty generally exceeds the failure-to-pay penalty, so filing reduces total penalties even without immediate payment.
This article is for informational purposes only and not legal or financial advice.