Quick overview

The IRS assesses a Failure-to-Pay Penalty when you don’t pay all tax owed by the due date. Left unchecked, the penalty and interest can turn a manageable balance into a much larger debt. In my practice advising individuals and small businesses, early action—partial payments, negotiating an installment agreement, or documenting a qualifying hardship—often avoids the worst outcomes.

(For official IRS guidance see: https://www.irs.gov/payments/penalties.)

How the Failure-to-Pay Penalty is calculated

  • Base rate: The standard penalty is 0.5% of the unpaid tax for each month or part of a month the tax remains unpaid, starting the day after the payment due date. The penalty continues until the tax is paid in full or the penalty reaches 25% of the unpaid tax.
  • Interaction with failure-to-file penalty: The failure-to-file penalty is generally larger (typically 5% per month). If both the failure-to-file and failure-to-pay penalties apply for the same period, the IRS reduces the failure-to-file penalty by the failure-to-pay amount for each month (see IRS penalties guidance for details).
  • Installment agreements: If you have an approved installment agreement, the failure-to-pay penalty rate is generally cut in half to 0.25% per month on the unpaid balance for the duration of the agreement (IRS guidance on installment agreements).
  • Interest: Separate from penalties, interest accrues on unpaid tax and penalty amounts and is compounded daily. Interest rates are set quarterly and can change; the IRS posts current rates (https://www.irs.gov/payments/interest-rates-on-underpayments-and-overpayments).

Example: If you owe $4,000 and don’t pay for four months, the failure-to-pay penalty at 0.5% per month would be $20/month, totaling $80 (plus interest). If an installment agreement is in place, that monthly penalty could be reduced to $10.

Main exceptions and relief paths

1) First-Time Penalty Abatement (FTA)

  • What it is: A common administrative relief the IRS offers to eligible taxpayers who have a clean penalty history.
  • Typical eligibility: No penalties for the prior three years, all required returns filed, and either paid or arranged to pay the tax due (check the IRS “First Time Penalty Abatement” guidance for specifics).
  • How it helps: The IRS may remove penalties for one tax period, including failure-to-pay penalties, if you qualify.

2) Reasonable cause / Penalty abatement for specific circumstances

  • Basis for relief: The IRS may abate penalties when you can show reasonable cause — circumstances beyond your control that prevented timely payment. Examples include serious illness, death in the immediate family, natural disasters, or unavoidable absence. Documentation supports your claim (medical records, death certificates, insurance reports, etc.).
  • What to document: Dates, a short timeline of events, proof of how the event prevented payment (hospital records, unemployment notices, bankruptcy filings) and steps you took to comply when possible.
  • How to apply: You can request abatement in writing, by calling the IRS, or sometimes through your online account. In practice I advise preparing a concise cover letter and attaching supporting documents; if the case is complex, consider tax professional representation.

3) Administrative waivers (IRS errors or processing delays)

  • When it applies: If an IRS error caused the late payment or if you relied on incorrect IRS guidance, the agency may waive penalties. Keep correspondence from the IRS or other proof of error.

4) Statutory exceptions and special situations

  • Disaster relief: When a federally declared disaster affects filing/payment, the IRS often provides automatic relief for affected taxpayers (see IRS disaster relief announcements).
  • Military service: Defined military service in combat zones can trigger special rules for tax deadlines and penalty relief.
  • Bankruptcy and collection limitations: Bankruptcy proceedings and certain collection statutes can alter how penalties and collections proceed—consult a bankruptcy attorney or tax advisor.

5) Payment alternatives that limit penalties

  • Installment agreements: Establishing an installment agreement reduces the monthly failure-to-pay rate (generally to 0.25%) and stops enforced collection actions while current. Start online or with Form 9465; see the IRS and our resources on installment plans.
  • Offer in Compromise (OIC): If you can’t pay the full amount, an OIC may settle tax liabilities for less than the full amount. OIC eligibility is strict and requires full financial disclosure.

For practical steps to set up or manage a payment plan see our guide: “Installment Agreements: Types, Eligibility, and How to Apply” (https://finhelp.io/glossary/installment-agreements-types-eligibility-and-how-to-apply/).

How to request abatement — step-by-step

  1. Review IRS notices: Identify which penalties you’ve been charged and confirm the assessment date and amounts.
  2. Check eligibility for FTA: If you haven’t had penalties in the last three years and your return is filed and tax paid or arranged for, request FTA first (the IRS often grants this quickly if you meet the rules).
  3. Gather evidence for reasonable cause: Collect documents showing why you couldn’t pay (medical records, termination notices, disaster declarations, proof of mailing, etc.).
  4. Contact the IRS: You can call the number on your notice, send a written request with supporting documentation, or ask a tax professional to contact the IRS on your behalf.
  5. Use the right forms if needed: In some situations tax professionals use Form 843 (Claim for Refund and Request for Abatement) for abatements; confirm whether your case requires this form.
  6. Follow up and escalate if necessary: Keep copies of everything, note phone calls (date, rep name, confirmation number), and if denied, you may request an appeal or Taxpayer Advocate assistance for unresolved hardships (https://taxpayeradvocate.irs.gov/).

Common mistakes I see and how to avoid them

  • Waiting until collection notices escalate. Early contact and partial payments reduce accrual and show good faith.
  • Assuming filing an extension eliminates payment responsibilities. Extensions give you time to file, not to pay.
  • Failing to request abatement or provide documentation. The IRS is more likely to grant relief when you provide clear, contemporaneous evidence.
  • Ignoring the separate role of interest. Abated penalties don’t remove interest already charged—interest continues until the tax is paid.

Practical examples from practice

  • Example 1 — First-time abatement: A client with one late payment but no penalties in the prior three years received FTA after we confirmed all returns were filed and she had set up an installment agreement for the owed balance. The IRS removed the assessed failure-to-pay penalty (I retained copies of her wage statements and bank records as part of the request).

  • Example 2 — Reasonable cause abatement: Another client faced unexpected hospitalization for weeks and missed payroll withholding corrections that resulted in tax due. With hospital records and an employer letter confirming extended absence, the IRS abated penalties for reasonable cause.

When to involve a professional

If the amount at stake is large, the facts are complicated (bankruptcy, business closure, or multiple years), or the IRS denies an abatement claim, engage a CPA, enrolled agent, or tax attorney. In my experience, a professional can improve documentation, navigate appeals, and coordinate with the Taxpayer Advocate when necessary.

Resources

Internal resources at FinHelp (useful guides):

Final tips

  • Act quickly: Contact the IRS and document everything.
  • Pay what you can: Partial payments reduce both interest and penalties.
  • Consider an installment agreement or OIC if you can’t pay; both have pros and cons depending on your financial situation (see our Installment vs OIC comparison).

Professional disclaimer: This article is educational only and does not constitute legal or tax advice. Your situation may have unique facts; consult a qualified tax professional before taking action on your tax account.