Quick summary
Failure-to-file and failure-to-pay are different penalties the IRS uses to encourage timely filing and payment. Failure-to-file is generally much costlier per month than failure-to-pay, but both can stack and are accompanied by interest on unpaid taxes. Filing on time—even if you can’t pay in full—limits the higher filing penalty and opens options like installment agreements.
(Author note: In my 15+ years advising taxpayers, I’ve seen timely filing dramatically reduce total charges even when full payment wasn’t possible.)
How do the two penalties work and how are they calculated?
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Failure-to-file (FTF): Charged when you do not file a required return by the due date (including extensions that only extend filing, not payment). The IRS generally charges 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. A separate minimum penalty applies if the return is more than 60 days late; check current IRS guidance for the dollar minimum that applies to your tax year. (See IRS penalties overview: https://www.irs.gov/penalties and Failure to File: https://www.irs.gov/businesses/small-businesses-self-employed/failure-to-file-penalties)
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Failure-to-pay (FTP): Charged when you file a return (or it’s assessed) but you don’t pay the tax by the due date. The typical rate is 0.5% of the unpaid tax for each month or part of a month the tax remains unpaid, up to 25% of the unpaid tax. Interest also accrues on unpaid tax and on penalties; the interest rate changes quarterly based on the federal short-term rate plus a statutory margin. (See IRS Payments: https://www.irs.gov/payments and Penalties Overview: https://www.irs.gov/penalties)
Important: these penalties are both expressed as a percent of unpaid tax, not of your total liability or refund. If you file late and don’t pay, both penalties can apply in the same month and are computed separately.
Example calculations (simple, realistic scenarios)
Example A — File late, can’t pay ($4,000 unpaid tax, 3 months late):
- Failure-to-file: 5% × $4,000 × 3 months = $600
- Failure-to-pay: 0.5% × $4,000 × 3 months = $60
- Combined penalties (before interest): $660
- Plus interest on unpaid tax and on penalties (interest compounds daily; the current IRS interest rate should be checked quarterly).
Example B — File on time, pay late ($2,000 unpaid tax, 2 months late):
- Failure-to-file: $0 (filed on time)
- Failure-to-pay: 0.5% × $2,000 × 2 = $20
- Total penalties: $20 + interest
These simplified examples show why filing on time is usually the higher priority even if you can’t pay in full.
How filing an extension affects penalties
Filing Form 4868 (individual extension) or a business extension only extends the deadline to file the return — it does not extend the deadline to pay taxes owed. You still owe the tax by the original due date and the failure-to-pay penalty and interest can apply. If you expect to owe, estimate and pay as much as possible with your extension to limit interest and penalties. (See FinHelp guide: When to Use Form 4868: Filing an Extension Correctly — https://finhelp.io/glossary/when-to-use-form-4868-filing-an-extension-correctly/)
Can penalties be reduced or waived?
Yes, under certain circumstances:
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First-Time Penalty Abatement (FTA): The IRS may provide administrative relief for a single tax period if you have a clean compliance history (often no penalties in the prior three years), filed required returns, and paid or arranged to pay any tax due. See IRS guidance and FinHelp’s overview of penalty relief options. (FinHelp: Penalty Relief Options Beyond First-Time Abatement — https://finhelp.io/glossary/penalty-relief-options-beyond-first-time-abatement/; IRS: https://www.irs.gov/penalties)
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Reasonable cause: Illness, natural disaster, or other circumstances beyond your control may justify penalty abatement. You must document the facts supporting your claim and submit a written request or use the IRS online processes where available. (FinHelp: How to Request Penalty Abatement: Evidence, Forms, and Timing — https://finhelp.io/glossary/how-to-request-penalty-abatement-evidence-forms-and-timing/)
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Installment agreements and certain payment arrangements: Entering into a formal installment agreement can stop collection action and, depending on the agreement type (for example, direct debit), may reduce the failure-to-pay penalty rate while the agreement is in effect. Specifics depend on the agreement type and IRS rules. See FinHelp’s installment agreement resources for setup and caveats: Setting Up an IRS Installment Agreement — https://finhelp.io/glossary/setting-up-an-irs-installment-agreement/ and https://www.irs.gov/payments.
In my practice I’ve found that a clear, well-documented reasonable-cause letter and evidence (hospital records, disaster declarations, proof of mailing) often improves the odds of abatement. Always keep copies of correspondence and dates.
Practical steps if you can’t pay on time
- File the return on time to avoid the larger failure-to-file penalty.
- Pay as much as you can when you file to reduce penalties and interest.
- Request an installment agreement online or by phone; use the IRS Online Payment Agreement tool or consult a tax professional. (See FinHelp resources on installment agreements: https://finhelp.io/glossary/setting-up-an-irs-installment-agreement/)
- If you have a reasonable cause, request abatement with supporting documentation as soon as possible. (See FinHelp: How to Request Penalty Abatement — https://finhelp.io/glossary/how-to-request-penalty-abatement-evidence-forms-and-timing/)
- Consider other relief options such as an Offer in Compromise only after exploring payment plans and abatement; Offers in Compromise have strict eligibility and documentation rules.
Common mistakes and misconceptions
- Thinking an extension to file is an extension to pay. It is not; you still owe taxes by the original due date.
- Believing the IRS will never assess penalties. The IRS routinely assesses failure-to-file and failure-to-pay and will apply interest until balances are cleared.
- Assuming penalties are only charged once. Both penalties can apply concurrently and interest compounds daily, so delays add up fast.
What you should document when seeking relief
- Dates and evidence supporting a reasonable-cause claim (medical records, death certificates, disaster declarations, military orders).
- Records showing you filed on time (return receipt, IRS transcripts) or proof you attempted to pay.
- Copies of Form 4868 or other extension paperwork and any correspondence with the IRS.
FAQs (short answers)
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Will filing late always trigger both penalties? Not always. If you file late and there’s unpaid tax, you may get both penalties. If you file late but paid in full, you’ll likely face only the failure-to-file penalty and interest on any balance if applicable.
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Can I get interest waived? Interest is generally not abated except in limited statutory situations; the IRS usually does not waive interest just because penalties were abated.
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How long do penalties apply? Each penalty has a monthly accrual up to a statutory cap (typically 25% for both FTF and FTP), but unpaid tax, penalties, and interest can remain collectible for years and may lead to liens or levies if not addressed.
Final checklist before filing if you expect to owe
- File or submit an extension by the due date.
- Pay what you can with the return or extension request.
- Set up an installment agreement if full payment is impossible. See FinHelp’s guides on installment agreements for the comparison of types and how to request one online: https://finhelp.io/glossary/setting-up-an-irs-installment-agreement/ and https://finhelp.io/glossary/how-to-request-an-installment-agreement-online/.
- Keep documentation if you’ll request abatement later.
Professional disclaimer
This article is educational and reflects general guidance and my professional experience working with taxpayers. It is not personalized tax advice. For your specific situation, consult a qualified tax professional or contact the IRS. Authoritative IRS resources referenced above should be consulted for current rates and procedures: IRS Penalties Overview (https://www.irs.gov/penalties), IRS Payments (https://www.irs.gov/payments), and Failure-to-File Penalties (https://www.irs.gov/businesses/small-businesses-self-employed/failure-to-file-penalties).
