How the penalty is calculated and when it starts

  • The penalty begins to accrue the day after your tax due date and is typically 0.5% of the unpaid tax for each month or partial month the balance remains unpaid, up to a 25% maximum (IRS). Interest also accrues on the unpaid tax and any penalties and is compounded daily at the IRS interest rate (IRS).

Example calculation:

  • Unpaid tax: $1,000
  • Monthly failure-to-pay penalty: 0.5% × $1,000 = $5
  • After 6 months: penalty = $30 (not counting interest)

(Amounts above illustrate the penalty only; interest will make the total cost higher.)

Common triggers and who is affected

  • Any taxpayer who owes federal tax and does not pay by the due date can face this penalty: individuals, sole proprietors, corporations, and trusts.
  • Filing late usually makes the situation worse because the failure-to-file penalty (typically 5% per month) can apply in addition to failure-to-pay. If both apply, the IRS explains how the amounts interact (see IRS penalty guidance).

Practical ways to avoid or reduce the penalty

  1. File on time even if you can’t pay in full. Filing stops the failure-to-file penalty and preserves remedies such as abatement consideration (IRS).
  2. Pay as much as you can by the due date. Every dollar paid reduces the base that penalties and interest are calculated on.
  3. Ask for an installment agreement. If you cannot pay now, set up a payment plan with the IRS — this prevents some collection actions and makes the balance more manageable. See our guides on Setting Up a Manageable Payment Plan with the IRS for Small Debts and How to Build a Successful IRS Payment Plan: Budgeting for Taxes. Also compare options in When to Use a Tax Payment Plan vs. Short-Term Loan.
  4. Request penalty relief if you have reasonable cause. The IRS offers penalty relief (including the First-Time Penalty Abatement) for qualifying taxpayers who meet specific criteria — file and contact the IRS or your tax professional to apply (IRS penalty relief).
  5. Keep records proving reasonable cause (illness, natural disaster, death, reliance on wrong advice, etc.). Documentation strengthens abatement requests.

Typical misconceptions

  • “Partial payments stop penalties”: Partial payments reduce the unpaid balance but do not stop the failure-to-pay penalty from accruing on the remaining balance.
  • “Penalties are the only consequence”: Unpaid tax can also lead to notices, liens, levies, and ongoing interest — serious long-term consequences.

Real-world example

A taxpayer owes $6,000 and pays nothing by the due date. The monthly failure-to-pay penalty at 0.5% is $30. After 10 months the penalty equals $300 (plus interest). Setting up an installment agreement early reduces stress, helps budget payments, and gives time to apply for relief if eligible.

Quick action checklist

  • File your return on time even if you cannot pay in full.
  • Pay as much as you can immediately.
  • Apply online for an IRS payment plan or call the IRS to set up terms (see our guides linked above).
  • If you missed payments for a valid reason, request penalty abatement and gather supporting documents.

Sources and further reading

Professional disclaimer: This page is for educational purposes and not personalized tax advice. For advice tailored to your situation, consult a licensed tax professional or contact the IRS directly.