What is the IRS failure-to-file penalty?
The IRS failure-to-file penalty is 5% of your unpaid tax for each month (or partial month) your return is late, capped at 25% (5 months). If your return is more than 60 days late, the minimum penalty is the lesser of $510 (2024) or 100% of the tax owed. When both failure-to-file and failure-to-pay penalties apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay penalty, resulting in a combined 5% charge. The total of both penalties is capped at 47.5%.
What is the difference between failure-to-file and failure-to-pay?
Failure-to-file applies when you do not file a return by the due date (including extensions). It is 5% per month up to 25%. Failure-to-pay applies when you owe tax and do not pay it by the due date. It is 0.5% per month up to 25%. You can get a 6-month filing extension (Form 4868) which eliminates the failure-to-file penalty — but it does NOT extend the time to pay. You must estimate and pay your tax by April 15 even with an extension to avoid failure-to-pay penalties and interest.
How can IRS penalties be reduced or waived?
The IRS offers several penalty relief options: First-Time Penalty Abatement (FTA) — available if you have no penalties in the prior 3 years and are otherwise compliant; Reasonable Cause — if you had a legitimate reason for late filing (serious illness, natural disaster, incorrect advice from a tax professional); Statutory Exception — for penalties resulting from IRS errors or erroneous written advice from IRS. You can request abatement by calling the IRS, writing a letter, or using Form 843. A tax attorney can significantly improve your abatement success rate.