How do penalties work if taxes are not filed on time in the US?

When US taxes are not filed on time, the IRS does not treat lateness as one single mistake with one single consequence. It treats it as two problems that can occur together but are still separate in the eyes of the system: you did not submit the return by the deadline, and you did not pay what was due by the deadline. That split explains why penalties can feel like they escalate quickly. The filing penalty is usually the more expensive one, and interest runs alongside everything until the balance is resolved.

Start with the core idea the IRS repeats in multiple places because it drives the math. You can apply for an extension of time to file, but an extension to file is not an extension to pay. In other words, the paperwork can wait if you request extra time correctly, but the money is still considered due by the original deadline, and penalties and interest can start accruing on any unpaid amount after that date. From there, the IRS generally applies the failure-to-file penalty when you owe tax and submit the return late. This penalty is usually five percent of the unpaid tax for each month, or part of a month, that the return is late, and it is capped at 25% of the unpaid tax. Notice the wording: it is based on the unpaid tax, not your entire tax liability for the year. If you had withholding from a job, made estimated payments, or qualify for credits that reduce what you ultimately owe, those amounts reduce the portion of tax that is considered unpaid when the IRS calculates penalties. This is one reason two people can miss the same deadline and see very different penalty bills.

Separately, the failure-to-pay penalty addresses the second problem: you did not pay the tax you owed by the deadline. This penalty is usually 0.5% of the unpaid tax for each month, or part of a month, the tax remains unpaid, and it too is capped at 25% of the unpaid tax. Because 0.5% is much smaller than 5%, many people are shocked to learn that the filing penalty is typically the real budget-breaker. It is often why filing something, even an imperfect return you later amend, can be financially smarter than waiting while you try to save up enough to pay.

There is also an important interaction when both penalties apply in the same month. The IRS does not generally charge the full five percent failure-to-file penalty and the full 0.5% failure-to-pay penalty on top of it. Instead, when both apply for the same month, the combined penalty is generally five percent total, often described as 4.5% for late filing plus 0.5% for late payment. The effect is still severe, but the key point is that the filing portion is what makes the monthly damage feel so fast.

If that were the whole story, many late filers would simply try to catch up “when they can.” The IRS adds another pressure point: if your return is more than 60 days late, there is a minimum late-filing penalty. For tax returns required to be filed in 2025, IRS guidance states the minimum is the lesser of $510 or 100% of the tax you owe. This detail matters because it can turn what someone imagines will be a gradual penalty into a sudden, more noticeable hit once that 60 day threshold is crossed. The number can change by filing year, but the structure stays the same: beyond a certain point, the IRS sets a floor for how small the late-filing penalty can be if you owe tax.

Penalties are only one part of the cost. Interest is the quiet third charge that keeps running even when people stop looking at their mailbox. The IRS charges interest on unpaid tax, and that interest compounds daily. The interest rate is set quarterly and can change over time. For the quarter beginning January 1, 2026, the IRS announced that the interest rate for both underpayments and overpayments for individuals would be 7% per year, compounded daily. That single sentence captures why waiting is expensive even when the penalty rates sound manageable. Daily compounding means balances grow steadily, and if your unpaid period spans multiple quarters, the rate applied can shift with each quarter.

This is also where many people misunderstand what filing an extension accomplishes. An extension can be a lifesaver for someone who needs more time to gather documents, reconcile self-employment income, or wait for a corrected form. It can prevent late-filing penalties by moving the filing deadline later, as long as the extension request is made correctly and the return is filed by the extended date. But it does not stop the late-payment penalty or interest if the taxpayer did not pay enough by the original deadline. The IRS has explicitly reminded taxpayers of this in its guidance: the extension changes the paperwork clock, not the payment clock.

A useful way to think about it is that the IRS rewards motion. If you file, you stop one of the most expensive penalty streams from growing. If you pay something, even if it is not the full amount, you reduce the unpaid balance that penalties and interest are calculated on. If you do neither, you create the conditions for the steepest, fastest accumulation of charges. Consider a simple scenario to see how the mechanics create urgency. Imagine a taxpayer owes $10,000 after taking into account withholding and any estimated payments. If they neither file nor pay for several months, the system will generally apply the failure-to-file penalty, the failure-to-pay penalty, and daily compounding interest on the unpaid amount. When both penalties apply in the same month, the combined penalty is generally five percent total, which means the balance can rack up penalties rapidly before interest is even considered. This is why tax professionals often give the same blunt advice: file even if you cannot pay, because filing is often the quickest way to slow the monthly bleed.

The story changes if the taxpayer is due a refund. If you are owed a refund, you typically are not penalized for filing late because the failure-to-file penalty is tied to tax owed. In practical terms, the IRS does not charge you a late-filing penalty for being late to claim money that was already yours. However, filing late is not consequence-free. The biggest risk is forfeiting the refund if you wait too long. The IRS warns that you generally must file within three years of the return due date to claim a refund, and the same general concept applies to certain credits. So a late return can shift from being a penalty problem to being a “lost money” problem, which is a different kind of regret.

If a taxpayer owes and cannot pay in full, the IRS encourages a payment plan approach rather than avoidance, and the structure of penalties supports that advice. The failure-to-pay penalty can be reduced for individuals who filed their return on time and have an approved payment plan. According to IRS guidance, the failure-to-pay penalty drops to 0.25% per month during the period an approved payment plan is in effect, assuming the return itself was filed on time. Interest still accrues, and the balance still needs to be paid, but this reduction can meaningfully lower the monthly penalty burden compared with doing nothing.

There is another point that pushes taxpayers toward acting early. The IRS notes that if you do not pay within a certain time after receiving a notice of intent to levy, the failure-to-pay penalty can increase to 1% per month. That detail reinforces the same theme: the IRS system becomes more punitive the longer a balance remains unresolved and the more it moves into formal collection territory. Of course, real life is messy, and late filing is often tied to more than procrastination. People miss deadlines because of illness, natural disasters, family emergencies, records that were destroyed, a spouse who handled finances and suddenly cannot, or a business collapse that made it impossible to pay and emotionally difficult to confront. For those situations, the IRS has penalty relief frameworks. One route is reasonable cause relief, which generally depends on showing that you exercised ordinary care and prudence but were nonetheless unable to file or pay on time. The IRS lists examples of circumstances that can support a reasonable cause claim, and it emphasizes that the decision is based on facts and circumstances.

Another route is administrative penalty relief, which includes the concept many people know as first-time abatement. The IRS describes administrative waiver relief as a possibility when it is your first tax penalty or you meet other criteria allowed under tax law. The broader point is that penalty relief exists, but it is not something to count on as your primary strategy. Relief tends to work best when you have already filed the missing return and are actively addressing the balance, because the IRS is evaluating both the reason for the failure and your overall compliance posture.

If you are trying to explain this to a reader in a clear, human way, the most helpful reframing is that late filing triggers a set of timers. One timer is for filing, and its monthly cost is usually the steepest. One timer is for payment, and its monthly cost is smaller but persistent. A third timer is interest, and it compounds daily regardless of whether you are feeling guilty or hopeful. Extensions can pause the filing timer if handled properly, but they do not pause the payment or interest timers. Payment plans do not erase interest, but they can reduce the late-payment penalty rate for eligible individuals who filed on time. Refund situations usually remove the penalty timers, but they introduce a separate deadline, the three-year window for claiming what you are owed.

What this means for someone who is already late is less about fear and more about sequence. The financially rational sequence is almost always to stop the most expensive clock first, which is filing, then reduce the balance as much as possible with any payment you can afford, and then place the remaining balance into the most structured, lowest-penalty path available, often an approved payment plan. Once the crisis is stabilized, that is the moment to consider whether you have grounds for penalty relief through reasonable cause or an administrative waiver.

A final detail that matters is psychological. People delay taxes because they are embarrassed, overwhelmed, or unsure. But the IRS penalty structure is designed so that silence is expensive. Filing is not a confession of failure. It is a practical move that can lower the rate at which costs accumulate, and it creates options, such as payment plans and potential relief, that are harder to access when you remain unfiled. In the end, the IRS does not require you to feel ready. It only responds to whether you file, whether you pay, and whether you engage the system before it escalates.