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April 29, 2025 
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2025–2026 IRS Late Tax Penalty Rates at a Glance
Here are the official IRS penalty rates applied to late tax returns and payments. These rates apply to both individuals and businesses:
| Penalty Type | Rate | Maximum | When It Applies |
|---|---|---|---|
| Failure-to-File | 5% of unpaid tax per month | 25% (after 5 months) | If you don’t file by April 15 (or extension deadline October 15) |
| Failure-to-Pay | 0.5% of unpaid tax per month | 25% (after 50 months) | If you file on time but pay late. Reduced to 0.25%/mo with installment agreement |
| Combined (both penalties) | 5% per month (4.5% file + 0.5% pay) | 22.5% file + 25% pay | When both apply, IRS caps failure-to-file at 4.5%/mo |
| Minimum late-filing penalty | $485 (2025) or 100% of unpaid tax (lesser) | — | If return is more than 60 days late |
| Interest on unpaid tax | Federal short-term rate + 3% (compounded daily) | No cap | ~8% annualized in 2025 |
| Failure-to-Deposit (payroll) | 2% – 15% | 15% | 2% (1–5 days) · 5% (6–15 days) · 10% (16+) · 15% (after IRS notice) |
| Estimated Tax Underpayment | Federal short-term + 3% (Form 2210) | — | If you owe $1,000+ and didn’t pay enough through withholding |
| Accuracy-Related Penalty | 20% of underpayment | — | Negligence or substantial understatement (≥10% or $5,000) |
| Civil Fraud Penalty | 75% of underpayment | — | Intentional tax fraud |
How to Calculate Your Penalty: Example
If you owe $10,000 in taxes and didn’t file or pay for 3 months:
| Component | Calculation | Amount |
|---|---|---|
| Failure-to-File (4.5%/mo × 3) | 13.5% × $10,000 | $1,350 |
| Failure-to-Pay (0.5%/mo × 3) | 1.5% × $10,000 | $150 |
| Interest (~8%/yr ÷ 12 × 3) | 2% × $10,000 | $200 |
| Total penalties + interest | $1,700 | |
| Total owed to IRS | $11,700 |
Penalty relief is available in many cases (First-Time Abatement, Reasonable Cause). Contact FreedomTax for IRS penalty abatement assistance.
Are you filing your taxes late or worried about missing a payment? In this video, we break down the 2025 IRS penalties for late filing and late payment—for both individuals and businesses. Learn how the IRS calculates penalties, what interest rates apply, and how quickly the fees can add up.
- What happens if you file taxes late
- IRS failure-to-file vs. failure-to-pay penalties
- Business tax penalty amounts
- How to reduce or avoid IRS penalties
- Tips for staying compliant in 2025
Whether you’re a small business owner or an individual taxpayer, understanding IRS tax penalties can save you thousands of dollars and legal headaches.
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TRANSCRIPTION
Hey there business owners and personal tax filers. Have you ever missed a tax deadline and wondered what really happens if I don’t pay the IRS in full? Well, it may start with a small penalty, then interest. You think you have more important things to pay.
It’s no big deal. Life happens, right? Days, weeks, months go by. Then before you know it, your mailbox is flooded with IRS notices and they’re not love letters.
In this video, I’m breaking down the real cost of filing late, paying late, or not paying at all for businesses and individuals. We’ll talk about penalties for S-Corps, C-Corps, partnerships, and what the IRS can do if you ignore them. Stick around because I’ll also show you how to avoid these penalties, reduce what you owe, and stay in the good graces of the IRS.
Let’s get into it. Let’s start with business taxes. These penalties apply to LLCs, corporations, partnerships, and even to sole proprietors.
The number one penalty that we’re going to go over today is the failure to file penalty. This is going to vary for the different filing types. Let’s start with the flow-through entities, which are partnerships and S-Corps.
Partnerships, which file form 1065 tax return, and S-Corps, which file form 1120S, are flow-through entities. There is no tax payment due on the corporate tax level in most cases. In these cases, the only penalty will be a failure-to-file penalty.
What’s the penalty? The penalty is calculated by multiplying an inflation-adjusted amount, which is $235 for returns required to be filed in 2024, by the number of persons who are partners or owners in the partnership or S-Corp throughout the tax year for each month not to exceed 12 months. When does it apply? If form 1065 or 1120S isn’t filed by the deadline, which is typically March 15th for calendar year partnerships and S-Corps, and no extension was requested, that’s when this penalty applies. Now let’s look at an example.
Let’s see this four-member partnership that files its return three months late. The penalty is going to be four, the partners, times 235, and then that times the three months that they were late. That results in a $2,820 penalty.
Another penalty that partnerships and S-Corps have to worry about are by not providing the K-1 to each partner on time. Failure to furnish schedules K-1 to partners is a $310 penalty per K-1 not timely provided. This is in 2024 with a maximum penalty of $3,783,000 per year for large partnerships.
When does this apply? If the partnership doesn’t issue scheduled K-1s to each partner by the due date of the form 1065 or 1120S, including extensions. Keep in mind late or incorrect K-1s can also result in penalties. Now let’s talk about C-Corp tax returns which file form 1120.
Now these are subject to two different kinds of penalties, the failure to file penalty and also the failure to pay penalty. The failure to file penalty is five percent of the unpaid tax for each month the return is late up to 25 percent total. When does this apply? If the C-Corp doesn’t file by the due date, which is generally the 15th day of the fourth month after the end of the tax year.
So for most people that’s April 15th of every calendar year. There is no penalty if the return shows no tax due but if tax is owed this penalty kicks in immediately. So let’s look at an example.
You filed form 1120 for the tax year 2024 and you filed it. It’s supposed to be due April 15th but you ended up filing it on May 5th which is 20 days late. Say you owed $1,000 on the 1120.
You did not file an extension so you’re going to owe the five percent per month of the failure to file penalty and this applies because the return was filed after the due date. So you were 20 days late which the IRS counts any part of a month as a whole month so that’s going to be a full month of penalty. The penalty is five percent of the thousand dollars tax that you owed that’s $50.
You also have a failure to pay penalty which is half of a percent per month and it applies for one full month since payment wasn’t made by April 15th. So the penalty of half a percent times a thousand dollars is five dollars but when both failure to file and failure to pay penalties apply in the same month the IRS graciously reduces the failure to file penalty by the failure to pay penalty and therefore it’s going to drop down to four and a half percent instead of five and a half percent so that’s going to end up costing you $45 in penalties. Don’t forget there’s also interest on the unpaid tax so the interest rate is about eight percent annually but it compounds daily and it changes quarterly.
So for estimation let’s use eight percent annual which equals about 0.02 percent daily. If we calculate that interest over the 20 days that results in a $4.40 penalty or interest rate. If you filed on time or filed an extension but didn’t pay the IRS is still going to penalize you for not paying on time and that failure to pay penalty still stands at half of a percent of the unpaid tax per month up to 25%.
So always file even if you can’t pay the failure to file penalty is definitely harsher. Now let’s look at the penalties that individuals face. They’re pretty similar; the failure to file a penalty is 5% per month up to 25% of the unpaid tax.
Even if you’re owed a refund you should definitely file on time because after three years the IRS keeps that refund and you can no longer get it back. There’s also the failure to pay penalty which is the same half percent of unpaid tax per month up to 25% and interest is also charged and it compounds daily. There is an estimated tax penalty so if you’re self-employed or have investment income you may need to make estimated payments.
Missing or underpaying these estimated payments can trigger penalties. So how do you avoid that? Avoid it by paying a hundred percent of the tax that you owed last year or 110% if your income is over $150,000 to avoid that underpayment penalty. Like the accuracy related penalties for businesses this applies also to individual returns that are incorrect or incomplete.
Remember that’s 20% of the underpaid tax due to negligence or disregard of the rules. So how do you know you owe a penalty? Well you know because you know if you filed late or paid late that a penalty is definitely on the way. When the IRS charges you a penalty they’re not going to call you they’re not going to send you an email although the state can but the IRS will certainly not call anybody they will send a notice or a letter and it’s going to tell you about the penalty the reason for the charge and what you should do next.
So on a side note if you owe the state like I said they may call you but for safety sake do not give out anyone calling you your banking or credit card information. Hang up and call the state directly and see what they tell you. There are too many scammers nowadays and they are getting more and more believable.
So back to the IRS letter. Verify the information in your notice or the letter is correct. If you can resolve the issue in your notice or the letter a penalty may not even apply.
Now many people move and they forget to update their addresses with the IRS and of course they don’t receive the letters. You must update your address with the IRS because these penalties are just going to keep increasing in the meantime and you’re not going to get the letter and you’ll end up finding out when your bank account gets frozen or you get a lien on your property which is never good. The good news is that many of these penalties can be reduced or even eliminated.
There is something called a first-time penalty abatement. If you filed and paid on time for the past three years you might qualify. It’s never guaranteed but it’s worth a shot.
It applies to failure to pay, failure to file and failure to deposit penalties. There’s also a cause relief which the IRS may waive penalties for events that like natural disasters, serious illness or theft. You will need to submit a written explanation and supporting documentation in order to try to get that.
There’s also a payment plan. If you need to establish a payment plan use Form 9465 to request an installment agreement. The IRS is still going to charge interest but the penalties may stop increasing.
You can always file on time. That’s always a very good way to avoid these penalties. And remember even if you can’t pay, file your return and communicate with the IRS as soon as you get that letter after you file when it shows your balance due.
So what happens if you don’t pay the balance you owe for whatever reason? Well the interest is going to keep accruing and that interest is charged daily on the unpaid tax and the penalty so that’s going to grow exponentially fast. The current interest rate as of 2025 like I mentioned is about 8% annually but it’s compounded daily so even small balances can grow quickly over time. It’s like a snowball effect.
So remember the failure to pay a penalty is half a percent per month up to 25% of the unpaid amount. This continues until the balance is paid in full or the maximum is reached. IRS notices and demands for payment.
You’re going to get a series of increasingly urgent letters. The first one is going to be the CP14. That’s the initial balance due.
That’s the one that when you receive it you should call the number at the top right hand corner to establish a payment plan. But if you ignore that one you’re going to get the CP501 through 503 and these are reminder notices. And then the CP504 that’s a notice to intent or levy.
That’s a serious warning. And the last step is a federal tax lien. If you ignore this the IRS can file a notice of federal tax lien making your debt public and this is going to hurt your business and personal credit and can affect your ability to sell your property or get loans.
The IRS can levy. They can legally take your bank accounts, your wages, your social security benefits, your accounts receivables, your business assets or vehicles. They can also seize and sell property to cover the debt.
And a lot of people don’t think about this one if you’re a foreigner. If your unpaid federal tax debt exceeds $62,000 the IRS can certify it to the state department and your passport can be revoked or denied. That’s terrible.
So please try to avoid that at all costs. There is no discharge in bankruptcy usually. Most tax debts are not easily dischargeable in bankruptcy unless specific conditions are met.
So how do we avoid this escalation? First of all, pay what you can. Even partial payments reduce penalties and interest. Request a payment plan.
Use the IRS online payment agreement or file form 9465 and stick to the plan. The minute you fail on your payment plan they will start to collect the entire balance once again. You can request a penalty abatement if it’s your first time or you have reasonable cause.
There’s also an offer in compromise. You may be able to settle for less than you owe on form 656. So to wrap this up, IRS penalties can be expensive and super stressful but most are avoidable.
Please pay attention to the filing deadlines. They typically are the same every single year so it’s not really a surprise. And when in doubt ask for help.
A tax professional like us can save you far more than we cost. Thanks for joining me today. This was a little bit of a longer video than usual I think but I hope this helps you understand this topic a little better.
I have a lot of people calling asking me about penalties all the time. Please like and share this video with anyone you would feel would benefit from this information and as always please give us a call if you need additional help. Thank you and God bless. – End of transcription
SUMMARY
What Happens If You Miss a Tax Deadline?
IRS late tax penalties are more than just a slap on the wrist—they’re a costly burden that grows over time. Whether you’re a business owner or individual taxpayer, filing late or failing to pay your tax bill can lead to a series of penalties, daily compounded interest, and in extreme cases, legal collection actions. These charges begin with small fines but can quickly escalate into significant debt.
According to the IRS, the failure-to-file penalty for businesses is calculated at $235 per owner, per month, up to 12 months—a 4-partner business can face $2,820 for filing just 3 months late.
Penalties for Businesses: LLCs, Partnerships, and Corporations
For business entities like partnerships and S-Corps, the most common penalty is the failure to file. For instance, if a four-member partnership files three months late, the penalty can reach $2,820. The IRS calculates this using a rate of $235 per partner, per month, up to 12 months. Additionally, if Schedule K-1 forms are not distributed to partners on time, the business can face $310 per missing or delayed form.
C-Corporations face a two-fold penalty structure: failure to file and failure to pay. Filing late triggers a 5% monthly penalty (up to 25%) on the unpaid tax. Payment delays add another 0.5% per month. Even worse, interest compounds daily at roughly 8% annually. This means that even modest balances can snowball into larger debt quickly if left unaddressed.
What About Individual Taxpayers?
Individual filers are not off the hook. Like corporations, they face up to 25% in failure-to-file penalties and an additional 0.5% monthly charge for unpaid taxes. There’s also interest compounding daily. If you owe a refund but wait more than three years to file, the IRS keeps the money—no exceptions.
Self-employed individuals are especially vulnerable to estimated tax penalties. Failing to pay enough throughout the year can lead to fines, unless you cover at least 100% of the previous year’s tax (110% for high earners). Inaccuracies or omissions due to negligence can also trigger a 20% accuracy-related penalty.
The IRS Notices You’ll Receive
If you don’t pay, the IRS will begin sending letters. The CP14 is the first notice for balances due. Ignoring this leads to CP501-503 reminders, and eventually CP504, which warns of a levy. If unresolved, a federal tax lien can be filed, harming credit and limiting your ability to sell property or obtain loans.
In severe cases, the IRS can levy your bank account, garnish wages, or even revoke passports for tax debts over $62,000. These aren’t empty threats—they are legal actions the IRS is fully authorized to carry out.
How to Minimize or Eliminate Penalties
There is hope. First-time penalty abatement is available if you’ve complied for the past three years. Reasonable cause relief can also apply in cases of illness, natural disaster, or theft. You must provide written explanation and proof. Installment agreements using Form 9465 can stop penalties from growing. Offer in compromise (Form 656) allows some taxpayers to settle their tax bill for less than the full amount owed.
Final Thoughts from Freedom Tax Expert
Penalties and interest build up faster than most people expect. Filing your tax return—even if you can’t pay—can save you thousands. Partial payments still reduce what you owe in interest. And taking action early helps you avoid IRS collections altogether. Don’t wait until the IRS freezes your bank account or files a lien—get expert help now and start resolving your tax issues.
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About Freedom Tax Accounting
Freedom Tax Accounting was founded in 2008 by Julian and Irma Vasquez during one of the most uncertain economic times in recent history. What began as a door-to-door service driven by faith and determination has grown into a trusted firm serving clients in all 50 states. Rooted in Christian values and a mission to honor God through professional service, Freedom Tax Accounting offers more than tax returns—we provide peace of mind.
Today, the firm is headquartered in Kissimmee, Florida, with a team of tax, accounting, and immigration professionals, and is expanding its presence across Central Florida. We’re proud to offer a family-style environment where personal care meets technical expertise, and where your financial goals are our shared mission.
