What is the penalty for late US tax filing?
Late US tax filing can incur two main penalties: a failure-to-file penalty (5% per month, max 25%) and a failure-to-pay penalty (0.5% per month, max 25%). Interest also accrues on unpaid taxes and penalties.
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Understanding US Tax Filing Penalties
When you file your federal income tax return late in the United States, the Internal Revenue Service (IRS) typically assesses two types of penalties: the failure-to-file penalty and the failure-to-pay penalty.
Failure-to-File Penalty
This penalty is generally 5% of the unpaid taxes for each month or part of a month that a tax return is late. The maximum penalty is 25% of your unpaid taxes. If your return is more than 60 days late, the minimum penalty can be a fixed amount, which was $485 in 2023, or 100% of the tax owed, whichever is smaller. This penalty is often more substantial than the failure-to-pay penalty.
Failure-to-Pay Penalty
The failure-to-pay penalty is 0.5% of the unpaid taxes for each month or part of a month the taxes remain unpaid. Similar to the failure-to-file penalty, this also has a maximum cap of 25% of your unpaid taxes. If both penalties apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay penalty, so the combined total is 5% per month. Additionally, interest charges are applied to both unpaid taxes and penalties, compounding the amount owed.
Mitigating Late Filing Penalties
You may avoid or reduce penalties if you have a reasonable cause for filing or paying late and can demonstrate this to the IRS. Examples of reasonable cause include natural disasters, serious illness, or unavoidable absence. The IRS also offers a First-Time Abatement policy for certain penalties if you have a clean compliance history for the past three tax years. Filing an extension for your tax return can prevent the failure-to-file penalty, but it does not extend the time to pay your taxes, meaning the failure-to-pay penalty and interest would still apply if you owe money.
Immediate Steps for Late Filers
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File your tax return as soon as possible, even if you cannot pay the full amount due. The failure-to-file penalty is much higher than the failure-to-pay penalty.
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Pay as much of your tax liability as you can immediately to minimize the failure-to-pay penalty and interest.
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If you cannot pay in full, contact the IRS to explore payment options, such as an installment agreement or offer in compromise.
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If you believe you have a valid reason for filing or paying late, prepare documentation to support a request for penalty abatement due to reasonable cause.
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Check your tax transcript or contact the IRS to confirm that all penalties and interest are correctly applied to your account.
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