What Is the Penalty for Missing a Tax Deadline?

Tax deadlines are specific dates set by the Internal Revenue Service (IRS) for filing tax returns and paying any taxes owed. Failing to meet these obligations can lead to various financial repercussions. Understanding these potential consequences helps taxpayers manage their financial responsibilities and avoid unexpected costs.

Understanding Penalties for Untimely Filing and Payment

Missing a tax deadline can result in two primary types of penalties: the Failure to File penalty and the Failure to Pay penalty. These penalties are distinct but can sometimes apply concurrently. Each penalty has its own triggers and calculation methods.

The Failure to File penalty is assessed when a taxpayer does not submit their tax return by the due date, including any approved extensions. This penalty amounts to 5% of the unpaid taxes for each month or part of a month the return is late. The maximum amount for this penalty is 25% of the unpaid taxes.

The Failure to Pay penalty applies when taxpayers do not pay the taxes they owe by the original due date, even if they have filed an extension to submit their return. This penalty is 0.5% of the unpaid taxes for each month or part of a month the payment is late. It is capped at 25% of the unpaid taxes.

Both penalties can be applied simultaneously, but the Failure to File penalty is higher. When both penalties apply for the same month, the Failure to File penalty is reduced by the amount of the Failure to Pay penalty. For example, the 5% Failure to File penalty would be reduced by 0.5% for that month, resulting in a 4.5% Failure to File penalty and a 0.5% Failure to Pay penalty.

Calculating Penalties and Interest

The Failure to File penalty accrues at 5% per month or partial month on the unpaid tax, reaching its 25% maximum after five months. For instance, if a taxpayer owes $10,000 and files three months late, the penalty would be $1,500.

The Failure to Pay penalty is calculated at 0.5% of the unpaid taxes for each month or part of a month the amount remains outstanding. When both penalties apply in the same month, the 5% Failure to File penalty is offset by the 0.5% Failure to Pay penalty, effectively reducing the late filing charge to 4.5% for that month.

Beyond penalties, interest is also charged on underpayments of tax. This interest starts accruing from the original tax due date until the tax is paid in full. The interest rate is determined quarterly and is the federal short-term rate plus three percentage points. For the first and third quarters of 2025, the interest rate for underpayments for individuals is 7%. This interest applies not only to the original unpaid tax but also to any unpaid penalties.

Steps to Avoid Penalties

Filing an extension for a tax return is a common strategy to gain more time to prepare and submit the necessary forms. Form 4868 grants an automatic extension of time to file, six months. This is only an extension to file, not an extension to pay. Any estimated tax liability must still be paid by the original due date to avoid Failure to Pay penalties.

Paying as much of the tax liability as possible by the original deadline reduces penalties, even if the full amount cannot be paid. The Failure to Pay penalty is calculated on the unpaid balance. Taxpayers can also establish an IRS payment plan, which reduces the Failure to Pay penalty to 0.25% per month during the approved plan.

For individuals who do not have taxes withheld from their income, such as self-employed individuals or those with significant investment income, making estimated tax payments throughout the year is important. These payments, made quarterly, help ensure that tax obligations are met as income is earned, preventing underpayment penalties. Taxpayers need to pay at least 90% of their current year’s tax liability or 100% of their prior year’s tax liability (110% if adjusted gross income was over $150,000) to avoid underpayment penalties.

Seeking Penalty Relief

Taxpayers may have options for seeking relief even after penalties have been assessed. One avenue is demonstrating “reasonable cause” for the failure to file or pay on time. The IRS evaluates reasonable cause based on facts and circumstances, requiring taxpayers to show they exercised ordinary business care and prudence but were still unable to comply. Examples include natural disasters, serious illness or death of the taxpayer or an immediate family member, or the inability to obtain necessary records.

Another administrative waiver available is the First-Time Abatement (FTA) policy. This relief is granted if a taxpayer has a clean record of tax compliance for the three preceding tax years. To be eligible, taxpayers must have filed all required returns and paid or arranged to pay any tax due. The FTA applies to Failure to File, Failure to Pay, and Failure to Deposit penalties.

To request penalty relief, taxpayers can call the IRS or submit a written request. If responding to a penalty notice, the request should be sent to the address provided on the notice. Providing detailed explanations and supporting documentation, such as medical records or police reports, can strengthen a request for abatement.